The Coholding Puzzle: New Evidence from Transaction-Level Data

Gathergood, John; Olafsson, Arna

Abstract

Why do individuals pay debt interest when they could use their savings to pay down the debt? We explore why individuals “cohold” debt and savings using detailed and highly disaggregated daily-level data on household finances. We find that coholding mostly occurs in short spells within the month and the level of coholding is typically modest. Periods of coholding are not associated with shocks at the individual level. We show that mental accounting has a role to play in explaining coholding, in particular how individuals allocate different categories of expenditure to accounts in credit and debit. (JEL D12, D14, D15, G51)

Citation

Gathergood, J., & Olafsson, A. (2024). The Coholding Puzzle: New Evidence from Transaction-Level Data. Review of Financial Studies, https://doi.org/10.1093/rfs/hhae016

• Journal Article Type: Article
• Acceptance Date: Dec 13, 2023
• Online Publication Date: May 6, 2024
• Publication Date: May 6, 2024
• Deposit Date: Dec 15, 2023
• Publicly Available Date: May 7, 2026
• Journal: The Review of Financial Studies
• Print ISSN: 0893-9454
• Electronic ISSN: 1465-7368
• Publisher: Oxford University Press
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1093/rfs/hhae016
• Keywords: Co-holding; credit card puzzle; consumer credit; household finance
• Public URL: https://nottingham-repository.worktribe.com/output/28432577
• Publisher URL: https://academic.oup.com/rfs/advance-article/doi/10.1093/rfs/hhae016/7665718
• Additional Information: Center for Big Data in Finance (grant no. DNRF167). Gathergood gratefully acknowledges support from the United Kingdom Economic and Social Research Council (grant no. ES/P008976/1). Andrea Marogg, Mengqi Qui and David Westerheide provided excellent research assistance. We are indebted to Meniga for providing and helping with the data.