Credit Cards: Transactional Convenience or Debt‐Trap?

Brown, Stephen J.; Veld, Chris; Veld‐Merkoulova, Yulia V.

doi:10.1111/irfi.12228

Cited by 2 publications

(2 citation statements)

References 40 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The propensity to plan plays an important role in curbing irresponsible credit card behavior. Buying a house or a car is a big expense in daily life (Brown et al, 2020). Consumers who have formed a detailed consumption plan will start saving for this goal in advance or have enough time to choose a responsible borrowing method (Barua et al, 2018;Lynch et al, 2010).…”

Section: Hypothesesmentioning

confidence: 99%

Financial knowledge and responsible credit card behavior: exploring mediators and moderators

Chen,

Jiang,

2024

IJBM

View full text Add to dashboard Cite

PurposeUnder the background of low consumer financial knowledge and accumulated credit card liabilities, this study investigates the relationship between financial knowledge and responsible credit card behavior using data from the 2019 China Household Finance Survey (CHFS). From the perspective of consumer economic well-being, this study defines accruing credit card debt to buy houses and cars when loans with lower interest rates are available as irresponsible credit card behavior.Design/methodology/approachThis study uses probit regressions to examine the association between financial knowledge and responsible credit card behavior because the dependent variable is a dummy variable. To alleviate endogeneity problems, this study uses instrument variables and Heckman’s two-step estimation. Furthermore, to explore the potential mediators in this process, this study follows the stepwise regression method. Finally, this study introduces interaction terms to examine whether this association differs in different groups.FindingsThe results indicate that financial knowledge is conducive to increasing the probability of responsible credit card behavior. Mediating analyses reveal that the roles of financial knowledge occur by increasing the degree of concern for financial and economic information and the propensity to plan. Moderating analyses show that the effects of financial knowledge on responsible credit card behavior are stronger among risk-averse consumers and in regions with favorable digital access.Originality/valueThis study measures responsible credit card behavior from the perspective of the consumer’s well-being, which enriches practical implications for consumer finance. Furthermore, this study explores the potential mediators influencing the process of financial knowledge that affects responsible credit card behavior and identifies moderators to conduct heterogeneous analyses, which helps comprehensively understand the nexus between financial knowledge and credit card behavior. By achieving these contributions, this study helps to curb the adverse effects of irresponsible credit card behavior on consumers’ well-being and the economic system and helps policymakers promote financial knowledge to fully prevent irresponsible credit card behavior.

show abstract

Section: Hypothesesmentioning

confidence: 99%

Financial knowledge and responsible credit card behavior: exploring mediators and moderators

Chen,

Jiang,

2024

IJBM

View full text Add to dashboard Cite

show abstract

“…In general, younger and older age groups are less financially literate than the middleaged (Lusardi & Mitchell, 2011) and, on average, find it more difficult to manage their debt responsibilities (Brown et al, 2018). Many retirees have accumulated wealth, such as in the form of an owner-occupied dwelling.…”

Section: Financial Literacy In a Financialized Societymentioning

confidence: 99%

An Analysis of Finnish Debtors Who Defaulted in 2014–2016 Because of Unsecured Credit Products

Majamaa

Lehtinen

2022

J Consum Policy

View full text Add to dashboard Cite

Consumer credit has become an important element of the economy despite the negative effects: Over-indebtedness has wide-ranging repercussions affecting consumers and society as a whole. We analysed the debt judgements (N = 4,095) of Finnish district courts from 2014 to 2016, as well as administrative data on debtors. Our focus was on the position of consumers on the credit market and their consumption-related problem debts, namely instant loans, extensive consumer credit, and credit-card as well as distance-selling indebtedness. Regarding the four credit products, first we considered the average amount of outstanding debt and then we looked at the sociodemographic and socioeconomic characteristics of the debtors. The results revealed that the average outstanding debt (€) varied according to the credit product and that the highest average amount originated from extensive consumer credit. Instant loans and distance-selling indebtedness caused debt problems especially among low-income young adults, adverse selection seemingly being one factor behind instant-loan-related debts. Extensive consumer credit and credit-card indebtedness were behind debt judgements against older consumers with a good socioeconomic position and numerous previous loans. This is a moral-hazard situation whereby borrowers may have more information about their total amounts of debt than the lenders. We suggest that, in many cases, debt problems reflect an abundant supply of consumer credit, which seems to foster asymmetric information, the consumer’s position and competence to act in the credit market, as well as various overall risk factors. The findings highlight the need to strengthen consumers’ financial skills and for loan products that meet the needs of low-credit-rated consumers. Moreover, lenders should act responsibly in the current credit market.

show abstract

Credit Cards: Transactional Convenience or Debt‐Trap?

Cited by 2 publications

References 40 publications

Financial knowledge and responsible credit card behavior: exploring mediators and moderators

Financial knowledge and responsible credit card behavior: exploring mediators and moderators

An Analysis of Finnish Debtors Who Defaulted in 2014–2016 Because of Unsecured Credit Products

Contact Info

Product

Resources

About