Financial Literacy and Consumer Credit Portfolios

Richard Disney and John Gathergood

Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)

Abstract: We use survey data from a sample of UK households to analyse the association between financial literacy and consumer credit portfolios. Among users of consumer credit there is much variation in levels of financial literacy. Borrowers with poor financial literacy hold higher shares of high cost credit (such as home collected credit, mail order catalogue debt and payday loans) than those with higher literacy. We estimate the cost of poor financial literacy in a multivariate setting by calculating the difference in average APRs paid by more and less literate consumers. We also show that households with poor financial literacy are typically self-aware: they are more likely to lack confidence when interpreting credit terms, and to exhibit confusion over financial concepts. They are also less likely to engage in behaviour which might help them to improve their financial literacy and awareness of the credit market.

Keywords: financial literacy; consumer credit; debt portfolios (search for similar items in EconPapers)
Date: 2012-06
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Financial literacy and consumer credit portfolios (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcfc:12/06

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