Financial literacy and consumer credit portfolios

Financial literacy, present bias and alternative mortgage products

“…We also contribute to the literature on financial literacy by developing a new set of questions that measure literacy with respect to understanding central features of mortgage contracts. Our results are consistent with the broader financial literacy literature which shows the effects of poor financial literacy on a broad range of financial choices, including retirement savings, stock market participation and use of consumer credit (Guiso & Jappelli, 2005;Lusardi & Mitchell, 2007a, 2007bvan Rooij et al, 2011avan Rooij et al, , 2011bDisney & Gathergood, 2013;Lusardi & Mitchell, 2014).…”

“…First, to construct an objective measure of the extent to which an individual understands the key concepts in finance relevant for mortgage choice, and second, to do so in a design which is not mathematically complex and can be incorporated in a survey setting. The literature has documented that basic or 'core' financial literacy varies in the population and that variation in correct responses to relatively simple questions about finance can explain significant heterogeneity in observed choices related to consumer credit and debt (Lusardi & Tufano, 2009;Disney & Gathergood, 2013), retirement savings (Lusardi & Mitchell, 2007a, 2007bvan Rooij et al, 2011a) and stock market participation (Guiso & Jappelli, 2005;van Rooij et al, 2011b). These studies typically use question-based measures to measure individual understanding of, for example, compound interest or minimum payments on a credit product.…”

Financial literacy, financial advice, and financial behavior

“…They also confirm that low literate individuals are substantially exposed to high-cost methods of borrowing. Disney and Gathergood (2013) confirm this finding for the U.K. by showing that low levels of financial literacy are associated with an excessive use of high-cost credit like payday loans or mail order catalogue debt.…”

“…Not surprisingly, the literature typically documents a negative correlation between financial literacy and mistakes in financing decisions: the less financially literate individuals are, the more likely they are to make poor financing decisions. Most prominently, there is solid evidence that low levels of financial literacy are associated with high-cost borrowing and suboptimal mortgage choices (e.g., Moore 2003;Lusardi and Tufano 2015;Lusardi and de Bassa Scheresberg 2013;Disney and Gathergood 2013). Lusardi and Tufano (2015) show for the U.S. that individuals exhibiting low levels of financial literacy use high-cost borrowing and pay higher transaction costs and fees.…”

Effect of Emotional Intelligence on Investment Decision Making With a Moderating Role of Financial Literacy

“…Investors with low financial literacy are likely to have low confidence when interpreting credit terms, and show mix-up over financial concepts. They also pause to involve in activities which could help them to enhance their cognizance of the financial market (Disney & Gathergood, 2013). The workplace activities and income level leading to better learning trainings have an impact on level of financial literacy of an individual (Al-Tamimi & Kalli, 2009).…”