Noncognitive Abilities and Financial Distress: Evidence from a Representative Household Panel

Kim Peijnenburg and Gianpaolo Parise ()

No 1193, HEC Research Papers Series from HEC Paris

Abstract: This paper provides evidence for a causal effect of noncognitive abilities on financial distress. In a representative panel of households, we find that people in the bottom decile of noncognitive abilities are five times more likely to experience financial distress than those in the top decile. This relation arises largely from worse financial choices and lack of financial insight by low-ability individuals, and only to a lesser degree reflects differential exposure to income shocks. We account for potential confounding factors including preferences, cognitive abilities, and demographics. Implications for policy and finance research are discussed.

Keywords: Noncognitive abilities; financial distress; financial choices; behavioral finance; psychology and economics (search for similar items in EconPapers)
JEL-codes: D10 D14 G41 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2017-03-01, Revised 2017-08-07
New Economics Papers: this item is included in nep-neu
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Citations: View citations in EconPapers (2)

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Journal Article: Noncognitive Abilities and Financial Distress: Evidence from a Representative Household Panel (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1193

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