Self-Control, Financial Literacy and Consumer Over-Indebtedness
psychological barriers, financial education, executive function
This paper examines the relationship between self-control, financial literacy and overindebtedness on consumer credit debt among UK consumers. Lack of self-control and financial illiteracy are positively associated with non-payment of consumer credit and self reported excessive financial burdens of debt. Consumers who exhibit self-control problems are shown to make greater use of quick-access but high cost credit items such as store cards and payday loans. We also find consumers with self-control problems are more likely to suffer income shocks, credit withdrawals and unforeseen expenses on durables, suggesting that lack of self-control increases exposure to a variety of risks. In most specifications we find a stronger role for lack of self-control than for financial illiteracy in explaining consumer over-indebtedness. We discuss the policy implications of these findings.