Financial literacy and mortgage stress

Mingzhi Hu, Zhenguo Lin and Yingchun Liu

Journal of Banking & Finance, 2024, vol. 163, issue C

Abstract: This paper examines the effect of financial literacy on mortgage stress. Using data from the Panel Study of Income Dynamics (PSID), we find that borrowers with high levels of financial literacy are over 60 percent less likely to suffer from mortgage stress than borrowers with low levels of financial literacy after controlling for observables. Our findings remain robust to various potential issues, including sample selection bias and functional misspecifications. Moreover, we find that the effect of financial literacy varies across different age groups of borrowers. Further analysis reveals strong cross effects of financial literacy and quantitative reasoning on mortgage stress.

Keywords: Financial literacy; Mortgage stress; Financial industry; Household finance (search for similar items in EconPapers)
JEL-codes: D10 G10 G21 R20 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:163:y:2024:i:c:s0378426624000876

DOI: 10.1016/j.jbankfin.2024.107170

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