Search Results

Title: The Credit Card Debt Puzzle: The Role of Preferences, Credit Risk, and Financial Literacy
Resulting in 1 citation.
1. 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.