Trust and Household Debt*

Consumer bankruptcy and default: the role of individual social capital

Danling Jiang and Sonya S Lim

Review of Finance, 2018, vol. 22, issue 2, 783-812

Abstract: Using a large sample of US individuals, we show that individuals with higher levels of trust have lower likelihoods of default in household debt and higher net worth. The effect is driven by trust values inherited from cultural and family backgrounds more than by trust beliefs about others. We demonstrate a causal impact of trust on financial outcomes by extracting the component of trust correlated with early-life experiences. The effect of trust is more pronounced among females, those with lower education, lower income, lower financial literacy, and higher debt-to-income ratio. Further evidence suggests that enhancing individuals’ trust, to the right amount, can improve household financial well-being.

Keywords: Trust; Trustworthiness; Household debt; Culture; Early-life experiences (search for similar items in EconPapers)
JEL-codes: D14 G11 H31 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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