IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Financial literacy and mortgage equity withdrawals

  • John V. Duca
  • Anil Kumar

The recent U.S. consumption boom and the subsequent surge in mortgage defaults have been linked to mortgage equity withdrawals (MEWs). MEWs are correlated with covariates consistent with a permanent income framework augmented for credit-constraints. Nevertheless, many households are financially illiterate. We assess the unexplored linkages between “active MEW” and measures of financial literacy using panel data from the Health and Retirement Study (HRS). Findings indicate that declines in mortgage interest rates encouraged MEWs. Nevertheless, financially illiterate households were significantly more likely to withdraw housing equity via traditional first or second mortgages (including cash-out mortgage refinancings but not home equity loans).> ; We find that the financially less savvy are 3–5 percentage points more likely to engage in this type of MEW relative to those who answered financial literacy questions correctly. Also significant were state differences in debtor versus creditor interests in bankruptcy, with loan demand effects outweighing loan supply effects across states.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 1110.

in new window

Date of creation: 2011
Date of revision:
Handle: RePEc:fip:feddwp:1110
Contact details of provider: Web page:

More information through EDIRC

Order Information: Email:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Glenn B. Canner & Karen E. Dynan & Wayne Passmore, 2002. "Mortgage refinancing in 2001 and early 2002," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 469-481.
  2. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2009. "Are Risk Aversion and Impatience Related to Cognitive Ability?," CESifo Working Paper Series 2620, CESifo Group Munich.
  3. Atif R. Mian & Amir Sufi, 2009. "House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis," NBER Working Papers 15283, National Bureau of Economic Research, Inc.
  4. Alberto Abadie & Guido W. Imbens, 2006. "Large Sample Properties of Matching Estimators for Average Treatment Effects," Econometrica, Econometric Society, vol. 74(1), pages 235-267, 01.
  5. Alan L. Gustman & Thomas L. Steinmeier & Nahid Tabatabai, 2010. "Financial Knowledge and Financial Literacy at the Household Level," Working Papers wp223, University of Michigan, Michigan Retirement Research Center.
  6. Jere R. Behrman & Olivia S. Mitchell & Cindy K. Soo & David Bravo, 2012. "How Financial Literacy Affects Household Wealth Accumulation," American Economic Review, American Economic Association, vol. 102(3), pages 300-304, May.
  7. Aron, Janine & Duca, John V & Muellbauer, John & Murata, Keiko & Murphy, Anthony, 2010. "Credit, Housing Collateral and Consumption: Evidence from the UK, Japan and the US," CEPR Discussion Papers 7876, C.E.P.R. Discussion Papers.
  8. Christopher D. Carroll & Misuzu Otsuka & Jiri Slacalek, 2011. "How Large Are Housing and Financial Wealth Effects? A New Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 55-79, 02.
  9. Annamaria Lusardi & Olivia S. Mitchell, 2009. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," CeRP Working Papers 90, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  10. M.C.J. van Rooij & A. Lusardi & R. Alessie, 2007. "Financial Literacy and Stock Market Participation," Working Papers 07-23, Utrecht School of Economics.
  11. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.
  12. Muellbauer, John & Murphy, Anthony, 1997. "Booms and Busts in the UK Housing Market," CEPR Discussion Papers 1615, C.E.P.R. Discussion Papers.
  13. Duca John V. & Rosenthal Stuart S., 1993. "Borrowing Constraints, Household Debt, and Racial Discrimination in Loan Markets," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 77-103, October.
  14. Lusardi, Annamaria & Tufano, Peter, 2009. "Debt literacy, financial experiences, and overindebtedness," CFS Working Paper Series 2009/08, Center for Financial Studies (CFS).
  15. Sumit Agarwal & Gene Amromin & Itzhak Ben-David & Souphala Chomsisengphet & Douglas D. Evanoff, 2010. "Learning to Cope: Voluntary Financial Education and Loan Performance during a Housing Crisis," American Economic Review, American Economic Association, vol. 100(2), pages 495-500, May.
  16. John Y. Campbell, 2006. "Household Finance," NBER Working Papers 12149, National Bureau of Economic Research, Inc.
  17. Alan Greenspan & James Kennedy, 2008. "Sources and uses of equity extracted from homes," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 120-144, spring.
  18. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
  19. B. Douglas Bernheim & Daniel M. Garrett & Dean M. Maki, 1997. "Education and Saving: The Long-Term Effects of High School Financial Curriculum Mandates," NBER Working Papers 6085, National Bureau of Economic Research, Inc.
  20. Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053.
  21. Guido W. Imbens, 2004. "Nonparametric Estimation of Average Treatment Effects Under Exogeneity: A Review," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 4-29, February.
  22. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: the Roles of Planning, Financial Literacy, and Housing Wealth," NBER Working Papers 12585, National Bureau of Economic Research, Inc.
  23. Jappelli, Tullio & Padula, Mario, 2011. "Investment in Financial Literacy and Saving Decisions," CEPR Discussion Papers 8220, C.E.P.R. Discussion Papers.
  24. Lars Lefgren & Frank McIntyre, 2009. "Explaining the Puzzle of Cross-State Differences in Bankruptcy Rates," Journal of Law and Economics, University of Chicago Press, vol. 52(2), pages 367-393, 05.
  25. Susan E. Woodward & Robert E. Hall, 2010. "Consumer Confusion in the Mortgage Market: Evidence of Less Than a Perfectly Transparent and Competitive Market," American Economic Review, American Economic Association, vol. 100(2), pages 511-15, May.
  26. Miles, David, 1992. "Housing markets, consumption and financial liberalisation in the major economies," European Economic Review, Elsevier, vol. 36(5), pages 1093-1127, June.
  27. Robert L. Clark & Melinda Sandler Morrill & Steven G. Allen, 2012. "Effectiveness of Employer-Provided Financial Information: Hiring to Retiring," American Economic Review, American Economic Association, vol. 102(3), pages 314-18, May.
  28. Andrew Benito, 2009. "Who Withdraws Housing Equity and Why?," Economica, London School of Economics and Political Science, vol. 76(301), pages 51-70, 02.
  29. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
  30. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center.
  31. Sumit Agarwal & John C Driscoll & Xavier Gabaix & David Laibson, 2007. "The Age of Reason: Financial Decisions Over the Lifecycle," Levine's Bibliography 122247000000001752, UCLA Department of Economics.
  32. Bernheim, B. Douglas & Garrett, Daniel M., 2003. "The effects of financial education in the workplace: evidence from a survey of households," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1487-1519, August.
  33. John V. Duca & John Muellbauer & Anthony Murphy, 2010. "Housing markets and the financial crisis of 2007-2009: lessons for the future," LSE Research Online Documents on Economics 33613, London School of Economics and Political Science, LSE Library.
  34. John V. Duca, 2005. "Mutual funds and the evolving long-run effects of stock wealth on U.S. consumption," Working Papers 0511, Federal Reserve Bank of Dallas.
  35. Bruce Ian Carlin & David T. Robinson, 2012. "Financial Education and Timely Decision Support: Lessons from Junior Achievement," American Economic Review, American Economic Association, vol. 102(3), pages 305-08, May.
  36. Victor Stango & Jonathan Zinman, 2009. "Exponential Growth Bias and Household Finance," Journal of Finance, American Finance Association, vol. 64(6), pages 2807-2849, December.
  37. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
  38. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2000. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," NBER Working Papers 7831, National Bureau of Economic Research, Inc.
  39. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 98, University of California, Davis, Department of Economics.
  40. Gary V. Engelhardt & Anil Kumar, 2011. "Pensions and Household Wealth Accumulation," Journal of Human Resources, University of Wisconsin Press, vol. 46(1), pages 203-236.
  41. James Poterba & Steven Venti & David A. Wise, 2013. "Health, Education, and the Postretirement Evolution of Household Assets," Journal of Human Capital, University of Chicago Press, vol. 7(4), pages 297 - 339.
  42. Andreas Lehnert & Dean M. Maki, 2002. "Consumption, debt and portfolio choice: testing the effect of bankruptcy law," Finance and Economics Discussion Series 2002-14, Board of Governors of the Federal Reserve System (U.S.).
  43. Laibson, David I. & Agarwal, Sumit & Driscoll, John C. & Gabaix, Xavier, 2009. "The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation," Scholarly Articles 4554335, Harvard University Department of Economics.
  44. Sumit Agarwal, 2007. "The Impact of Homeowners' Housing Wealth Misestimation on Consumption and Saving Decisions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(2), pages 135-154, 06.
  45. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 605-654.
  46. Engelhardt, Gary V, 1996. "Consumption, Down Payments, and Liquidity Constraints," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 255-71, May.
  47. Bucks, Brian & Pence, Karen, 2008. "Do borrowers know their mortgage terms?," Journal of Urban Economics, Elsevier, vol. 64(2), pages 218-233, September.
  48. Sumit Agarwal & Paige Marta Skiba & Jeremy Tobacman, 2009. "Payday Loans and Credit Cards: New Liquidity and Credit Scoring Puzzles?," American Economic Review, American Economic Association, vol. 99(2), pages 412-17, May.
  49. Edwin Leuven & Barbara Sianesi, 2003. "PSMATCH2: Stata module to perform full Mahalanobis and propensity score matching, common support graphing, and covariate imbalance testing," Statistical Software Components S432001, Boston College Department of Economics, revised 19 Jan 2015.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:feddwp:1110. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Chapman)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.