The investment decisions of young adults under relaxed borrowing constraints

Michael Insler (), James Compton and Pamela Schmitt

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2016, vol. 64, issue C, 106-121

Abstract: Students at the United States Naval Academy have the opportunity to take a Career Starter Loan (CSL). Two military-oriented banks offer these large personal loans at very low interest rates to all students. Thus the CSL provides a novel opportunity to study the behavior of a sample of borrowers that is not selected due to credit history and is often too liquidity-constrained to invest. Using survey data, this paper examines borrowers’ investment and consumption decisions in relation to their cognitive ability (measured by the Cognitive Reflection Test, the SAT, and grade point average), personality traits (captured by the Myers–Briggs Type Indicator), and other demographic characteristics. Tobit models reveal that: (1) cognitive ability is positively associated with more investment and riskier choices; (2) some MBTI personality traits are strong predictors of investment behavior; (3) individuals with prior investment experience or who view themselves as financially literate tend to invest more and with more risk; (4) these findings are largely consistent across students from all income levels.

Keywords: Survey methods; Behavioral economics; Personal finance; Investment decisions (search for similar items in EconPapers)
JEL-codes: C83 D03 D14 G11 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:64:y:2016:i:c:p:106-121

DOI: 10.1016/j.socec.2015.07.004

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