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Author: Gorbachev, Olga
Resulting in 2 citations.
1. Gorbachev, Olga
Luengo-Prado, Maria Jose
The Credit Card Debt Puzzle: The Role of Preferences, Credit Access Risk, and Financial Literacy
Review of Economics and Statistics published online (16 July 2018): DOI: 10.1162/rest_a_00752.
Also: https://www.mitpressjournals.org/doi/abs/10.1162/rest_a_00752
Cohort(s): NLSY79
Publisher: MIT Press
Keyword(s): Credit/Credit Constraint; Debt/Borrowing; Financial Literacy; Risk Perception

We use the 1979 National Longitudinal Survey of Youth to revisit what is termed the credit card debt puzzle: why consumers simultaneously co-hold high-interest credit card debt and low-interest assets that could be used to pay down this debt. Relative to individuals with no credit card debt but positive liquid assets, borrower-savers have very different perceptions of future credit access risk and use credit cards for precautionary motives. Moreover, changing perceptions about credit access risk are essential for predicting transitions among the two groups. Preferences and the composition of financial portfolios also play a role in these transitions.
Bibliography Citation
Gorbachev, Olga and Maria Jose Luengo-Prado. "The Credit Card Debt Puzzle: The Role of Preferences, Credit Access Risk, and Financial Literacy." Review of Economics and Statistics published online (16 July 2018): DOI: 10.1162/rest_a_00752.
2. Gorbachev, Olga
Luengo-Prado, Maria Jose
The Credit Card Debt Puzzle: The Role of Preferences, Credit Risk, and Financial Literacy
Working Paper No. 2016-6, Federal Reserve Bank of Boston, July 2016.
Also: https://www.bostonfed.org/publications/research-department-working-paper/2016/the-credit-card-debt-puzzle-the-role-of-preferences-credit-risk-and-financial-literacy.aspx
Cohort(s): NLSY79
Publisher: Federal Reserve Bank of Boston
Keyword(s): Assets; Credit/Credit Constraint; Debt/Borrowing; Financial Behaviors/Decisions; Financial Literacy; Savings

Permission to reprint the abstract has not been received from the publisher.

As of 1983 in the United States, and later in Denmark and the United Kingdom, researchers have documented a type of consumer behavior that has come to be known as the "credit card debt puzzle": individuals who choose to revolve unsecured high-interest credit card debt while also holding low interest-bearing monetary assets that could be used to pay down these balances. The authors use a dataset constructed from the 1979 National Longitudinal Survey of Youth (NLSY79) in order to test different theoretical explanations for the credit card debt puzzle. The NLSY dataset permits examination of the credit card debt puzzle over different time periods, it contains measures of intelligence, financial literacy, and risk preferences, and provides details on household income, assets and liabilities. Based on reported amounts of credit card debt and liquid monetary assets, the authors divide the NLSY79 respondents into four categories: borrower-saver (the puzzle group holding both debt and assets), borrowers (debt, no assets), neutral (no debt, no assets), and savers (assets, no debt).
Bibliography Citation
Gorbachev, Olga and Maria Jose Luengo-Prado. "The Credit Card Debt Puzzle: The Role of Preferences, Credit Risk, and Financial Literacy." Working Paper No. 2016-6, Federal Reserve Bank of Boston, July 2016.