Think Twice or Be Wise in Consumer Credit Choices

Dick, Christian D. ; Jaroszek, Lena

Document Type: Conference presentation
Year of publication: 2015
Conference title: European Retail Investment Conference
Location of the conference venue: Stuttgart, Germany
Date of the conference: 22.-24.4.2015
Place of publication: Mannheim
Publication language: English
Institution: Business School > Internat. Finanzierung (Ruenzi 2009-)
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
Subject: 330 Economics
Abstract: We analyze whether the frequent use of credit lines is influenced by households' thinking dispositions, i.e. their tendency to reflect upon decisions or to opt for intuitive and impulsive solutions. We consider the special case of Germany where credit lines on current accounts are available to 80% of the population. We document that the frequent usage of costly credit lines is more likely for people who give intuitive but incorrect answers in the Cognitive Reflection Test. Our analysis of a rich sample of household data also adds to the discussion on the role of financial literacy in credit decisions. Our results provide evidence that consumers with higher levels of financial literacy buy less on credit lines independently from their tendency to reflect.

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