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Do nudges reduce borrowing and consumer confusion in the credit card market?

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  • Adams, Paul
  • Guttman-Kenney, Benedict
  • Hayes, Lucy
  • Hunt, Stefan
  • Laibson, David
  • Stewart, Neil

Abstract

We study nudges that turn out to have precise null effects in reducing long-run credit card debt. We test nudges across two field experiments covering 183,441 UK cardholders. Our first experiment studies nudges added to monthly credit card statements. Our second experiment studies letters and email nudges (separate from monthly statements) sent to cardholders who signed up to automatically pay the minimum required payment.In a follow-up survey to our second experiment, we find that 96% of respondents underestimate the time it would take to fully repay a debt if the cardholder made only the minimum required payment. The nudges reduce this confusion, but underestimation remains overwhelmingly common.

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  • Adams, Paul & Guttman-Kenney, Benedict & Hayes, Lucy & Hunt, Stefan & Laibson, David & Stewart, Neil, 2022. "Do nudges reduce borrowing and consumer confusion in the credit card market?," LSE Research Online Documents on Economics 115093, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:115093
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    Cited by:

    1. Guttman-Kenney, Benedict & Firth, Chris & Gathergood, John, 2023. "Buy now, pay later (BNPL) ...on your credit card," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
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    5. Jason Allen & Michael Boutros & Benedict Guttman-Kenney, 2024. "Credit Card Minimum Payment Restrictions," Staff Working Papers 24-26, Bank of Canada.

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    JEL classification:

    • N0 - Economic History - - General
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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