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Self-Control, Financial Literacy and Consumer Over-Indebtedness

  • John Gathergood

This paper examines the relationship between self-control, financial literacy and over-indebtedness on consumer credit debt among UK consumer. Lack of selfcontrol and financial illiteracy are positively associated with non-payment of consumer credit and self-reported excessive financial burdens of debt. Consumers who exhibit self-control problems are shown to make greater use of quick-access but high cost credit items such as store cards and payday loans. We also find consumers with self-control problems are more likely to suffer income shocks, credit withdrawals and unforeseen expenses on durables, suggesting that lack of self-control increases exposure to a variety of risks. In most specifications we find a stronger role for lack of self-control than for financial illiteracy in explaining consumer over-indebtedness. We discuss the policy implications of these findings.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 12/02.

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Handle: RePEc:not:notcfc:12/02
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