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Attitude of Hungarian Young Adults Towards Bank Loans: The Risk Mitigation Trap

Daniel Beres () and Katalin Huzdik ()
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Katalin Huzdik: PhD, Associate Professor, Budapest Matropolitan University

Public Finance Quarterly, 2022, vol. 67, issue 1, 33 - 55

Abstract: The aim of this study is to examine the attitude of Hungarian young adults (18-25 years) towards bank loans. For the analysis we used two primary data sources, namely, two comprehensive financial literacy surveys were executed in 2013 and 2020. The samples are non-representatives, however, the number of involved survey participants exceeded 1,740 in both cases so the results can be considered robust. It was found that the attitude of young Hungarian adults towards the loans is negative: they apply for a loan only if it is non-avoidable. Between the 2013 and 2020 surveys the economic cycle showed prosperity. As a result, the respondents devalued the importance of the loans in the economy. Besides, the extreme rejection of having a bank loan was also mitigated (the bank loan can be useful for persons not having strong financial background). As for the bank loan experiences of the respondents it was found that the purposes of the borrowed loans are along the good criteria of financial literacy – the spendings examined can be considered as an investment for the future. Regarding the satisfaction level of the respondents with the bank loans when they were asked to evaluate the loans in ex-post way, it was found that predictability as for the principal and interest payment and loan conditions are only the second most important satisfactory factor. The most important satisfactory factor was the expectations for the future. In a situation of lack of trust in financial system after the 2008 financial crisis the measures taken such as re-defining consumer friendly lending and executing population supporting policy involving credit institutions resulted a mild positive effect on the attitude of the young Hungarian adults towards the bank loans. Finally, the habit of avoiding risk of the Hungarian population, which habit can be recognized also at the young adults, results a trap situation that is against financial inclusion and results disequilibrium in demand and supply of banking services, that causes deadweight loss for the whole society. The effect of the so called ‘risk mitigation trap’ can be reduced by developing the financial literacy.

Keywords: credit; loan; young adults; attitude; risk mitigation trap (search for similar items in EconPapers)
JEL-codes: D69 D81 E21 G40 G53 (search for similar items in EconPapers)
Date: 2022
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