Financial literacy and the cost of borrowing

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43 Scopus citations

Abstract

This research investigates the relation between financial literacy and the cost of borrowing via credit cards and mortgage loans among US consumers. This is a departure from previous studies that have focused on levels of debt in relation to human capital, either financial knowledge or education. Data from the Consumer Finance Monthly (CFM) survey are used to specifically examine the effect of financial literacy on borrowing rates for credit cards and mortgages controlling for other human capital influences. The CFM is a national survey, rich in American consumer credit information, and includes a comprehensive instrument specifically designed to measure financial literacy. Results indicate that those who are financially literate are about twice as likely to have lower costs of borrowing for both credit cards and mortgage loans.

Original languageEnglish
Pages (from-to)566-572
Number of pages7
JournalInternational Journal of Consumer Studies
Volume36
Issue number5
DOIs
StatePublished - Sep 2012

Keywords

  • Borrowing
  • Credit cards
  • Financial literacy
  • Interest rates
  • Mortgage loans

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