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Financial Literacy ad Indebtedness: New Evidence for UK Consumers

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  • Richard Disney
  • John Gathergood

Abstract

We utilise questions concerning individual ‘debt literacy’ incorporated into market research data on households’ unsecured debt positions to examine the association between consumer credit and individual financial literacy. We examine the relationship between individual responses to debt literacy questions and household net worth, consumer credit use and over-indebtedness. We find that financially illiterate households have lower net worth, use higher cost credit and are more likely to report credit arrears or difficulty paying their debts. However, financially literate households are more likely to co-hold liquid savings and revolving consumer credit, suggesting that the co-holding might arise as a result of rational financial behaviour. We consider the potential endogeneity of financial literacy.

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  • Richard Disney & John Gathergood, "undated". "Financial Literacy ad Indebtedness: New Evidence for UK Consumers," Discussion Papers 11/05, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  • Handle: RePEc:not:notcfc:11/05
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    Cited by:

    1. Klapper, Leora & Lusardi, Annamaria & Panos, Georgios A., 2012. "Financial literacy and the financial crisis," Policy Research Working Paper Series 5980, The World Bank.
    2. Ales S. BERK & Mitja COK & Marko KOSAK & Joze SAMBT, 2013. "CEE Transition from PAYG to Private Pensions: Income Gaps and Asset Allocation," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(4), pages 360-381, August.
    3. Margherita Fort & Francesco Manaresi & Serena Trucchi, 2016. "Adult financial literacy and households’ financial assets: the role of bank information policies," Economic Policy, CEPR;CES;MSH, vol. 31(88), pages 743-782.
    4. Annamaria Lusardi, 2012. "Numeracy, financial literacy, and financial decision-making," NBER Working Papers 17821, National Bureau of Economic Research, Inc.
    5. Elisabete Santos & Margarida Abreu, 2013. "Financial Literacy, Financial Behaviour and Individuals’ Over-indebtedness," Working Papers Department of Economics 2013/11, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    6. M. Fort & F. Manaresi & S. Trucchi, 2012. "Banks Information Policies, Financial Literacy and Household Wealth," Working Papers wp852, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Dick, Christian D. & Jaroszek, Lena M., 2013. "Knowing what not to do: Financial literacy and consumer credit choices," ZEW Discussion Papers 13-027, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. Gathergood, John, 2012. "Self-control, financial literacy and consumer over-indebtedness," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 590-602.
    9. John Gathergood & Joerg Weber, 2012. "Self-Control, Financial Literacy and Co-Holding Puzzle," Discussion Papers 2012-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.

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