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Self-control, Financial Literacy and the Co-holding Puzzle

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  • John Gathergood
  • Jörg Weber

Abstract

We use UK survey data incorporating measures of financial literacy and behavioral characteristics to analyze the puzzling co-existence of high cost revolving consumer credit alongside low yield liquid savings in household balance sheets, which we term the ‘co-holding puzzle’. Approximately 14% of households in our sample co-hold, on average, .3,400 of revolving consumer credit on which they incur interest charges, even though they could immediately pay down all this debt using their liquid assets. Co-holders are typically more financially literate, with above average income and education However, we show co-holding is also associated with impulsive spending behavior on the part of the household. Our results provide empirical support to theoretical models in which households co-hold as a means of managing self-control problems.

Suggested Citation

  • John Gathergood & Jörg Weber, 2012. "Self-control, Financial Literacy and the Co-holding Puzzle," Discussion Papers 12/04, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    • Handle: RePEc:not:notcfc:12/04
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    File URL: https://www.nottingham.ac.uk/cfcm/documents/papers/12-04.pdf
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    Cited by:

    1. Olga Gorbachev & María Jose Luengo-Prado, 2016. "The credit card debt puzzle: the role of preferences, credit risk, and financial literacy," Working Papers 16-6, Federal Reserve Bank of Boston.
    2. Disney, Richard & Gathergood, John & Weber, Jörg, 2015. "Credit counseling: a substitute for consumer financial literacy?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 14(4), pages 466-491, October.
    3. Alessandra Amendola & Alfonso Pellecchia & Luca Sensini, 2016. "Factors Driving the Credit Card Ownership in Italy," International Business Research, Canadian Center of Science and Education, vol. 9(6), pages 131-142, June.

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