Self-control, financial literacy & the co-holding puzzle

Gathergood, John; Weber, Jörg

Abstract

We use UK survey data to analyze the puzzling co-existence of high cost revolving consumer credit alongside low yield liquid savings in household balance sheets, which we name the ‘co-holding puzzle'. Approximately 12% of households in our sample co-hold, on average, £3800 of revolving consumer credit on which they incur interest charges, even though they could immediately pay down all this debt using their liquid assets. Co-holders are typically more financially literate, with above average income and education. In most estimates co-holding is also associated with impulsive spending behavior on the part of the household. Our results provide empirical support to theoretical models in which households co-hold as a means of managing self-control problems.

• Journal Article Type: Article
• Publication Date: May 1, 2014
• Journal: Journal of Economic Behavior & Organization
• Electronic ISSN: 0167-2681
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 107
• APA6 Citation: Gathergood, J., & Weber, J. (2014). Self-control, financial literacy & the co-holding puzzle. Journal of Economic Behavior and Organization, 107, https://doi.org/10.1016/j.jebo.2014.04.018
• DOI: https://doi.org/10.1016/j.jebo.2014.04.018
• Keywords: Consumer credit; Self-control; Financial literacy
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S0167268114001231
• Copyright Statement: Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by/4.0