Is Digital Credit Filling a Hole or Digging a Hole? Evidence from Malawi

Shaming Microloan Delinquents: Evidence from a Field Experiment in China

We study the effects of village credit information sharing on individual microloan repayment, using a randomized experiment with loan applicants from 40 villages in rural China. In our main treatment, customers received a message on the loan application form that “overdue payment (40 days after each installment due date) will be considered for public disclosure among the village by showing debtors’ names on a blackboard outside the village office of the microlending institution.” On average, this social appeal reduces the share of delinquents and the individual delinquency rate by 18.6% and 5.6% from baseline rates of 79.5% and 15.2%, respectively. The effects appear more pronounced among male and older borrowers. Additional treatments help to benchmark the effect against lender credit information sharing and separate the effects on adverse selection and moral hazard. Mechanism analysis shows that the publicly disclosed “blacklist” of delinquents affects borrowers’ repayment behaviors, partially through borrowers’ fear of losing informal risk insurance from the village society and predominately through public shaming penalties. Overall, these results support that, in traditional societies, social appeals can provide not only pecuniary, but also psychological incentives to improve loan repayment. Psychological incentives, to some extent, have stronger effects. This paper was accepted by Gustavo Manso, finance.

Debt literacy, financial experiences, and overindebtedness

We analyze a national sample of Americans with respect to their debt literacy, financial experiences, and their judgments about the extent of their indebtedness. Debt literacy is a component of broader financial understanding that measures knowledge about debt and self-assessed financial knowledge. Financial experiences are the participants’ reported experiences with traditional borrowing, alternative borrowing, and investing. Overindebtedness is a self-reported measure. Debt literacy is low, with only about one-third of the population grasping the basics of interest compounding. Even after controlling for demographics, we find a relationship between debt literacy and both financial experiences and debt loads. Individuals with lower levels of debt literacy tend to transact in high-cost manners, incurring higher fees and using high-cost borrowing. We provide a rough estimate of the national implications of debt ignorance on credit card costs by consumers. Less knowledgeable individuals also report that their debt loads are excessive or that they are unable to judge their debt position.

The Future of Money: How the Digital Revolution Is Tran…

A cutting-edge look at how accelerating financial chang…

Information Disclosure, Cognitive Biases, and Payday Borrowing

ABSTRACT Can psychology‐guided information disclosure induce borrowers to lower their use of high‐cost debt? In a field experiment at payday stores, we find that information that makes people think less narrowly (over time) about finance costs results in less borrowing. In particular, reinforcing the adding‐up dollar fees incurred when rolling over loans reduces the take‐up of future payday loans by 11% in the subsequent 4 months. Although we remain agnostic as to the overall sufficiency of better disclosure policy to “remedy” payday borrowing, we cast the 11% reduction in borrowing in light of the relative low cost of this policy.

Minimum Required Payment and Supplemental Information Disclosure Effects on Consumer Debt Repayment Decisions

Repayment decisions—how much of the loan to repay and when to make the payments—directly influence consumer debt levels. The authors examine how minimum required payment policy and loan information disclosed to consumers influence repayment decisions. They find that while presenting minimum required payment information has a negative impact on repayment decisions, increasing the minimum required level has a positive effect on repayment for most consumers. Experimental evidence from U.S. consumers shows that consumers’ propensity to pay the minimum required each month moderates these effects; U.K. credit card field data indicate that borrowers’ credit limit and balance due also moderate these effects. However, increasing the minimum level is unlikely to completely eliminate the negative effect of presenting minimum payment information. In addition, disclosing supplemental information, such as future interest cost and time needed to repay the loan, does not reduce the negative effects of including minimum payment information and has no substantial positive effect on repayments. This research offers new insights into the debt repayment process and has implications for consumers, lenders, and public policy.

Do Local Capital Market Conditions Affect Consumers’ Borrowing Decisions?

This paper uses detailed data from an online peer-to-peer lending intermediary to test whether local access to finance affects consumers’ willingness to pay for loans. After controlling for local economic conditions and borrower credit quality, we find that borrowers who reside in areas with good access to bank finance request loans with lower interest rates. This effect is stronger for borrowers with poor credit and those seeking small loans, suggesting that local access to finance is more important for marginal borrowers. Overall, our findings shed light on how consumers substitute between alternative sources of finance. This paper was accepted by Wei Jiang, finance.

Information disclosure and credit card repayments: evidence from Malaysia

Purpose This study analyzes the role of information disclosure in influencing credit card repayments by focusing on three intervention methods for improving repayment decisions among credit cardholders. Design/methodology/approach This study uses the survey method to collect data. Four questionnaires are designed to identify which types of disclosure elicit better repayment decisions among credit cardholders. The participants were approached using the mall intercept method, and a total of 1,775 responses were obtained. Findings Estimations using means comparison tests show that not providing minimum payment information improves repayments. The expected benefits are not delivered by the provision of higher minimum payment information or additional information that highlights the negative effects of making the minimum repayment only. Further analysis using logit estimation reconfirms the benefit of not providing minimum payment information. However, when such information is given, low minimum payment information elicits better repayment decisions than high minimum payment information or additional information. Repayment worsens under the additional information condition compared to the high minimum payment condition. Research limitations/implications The findings of this study have a bearing on the decisions of policy makers, credit card issuers and consumers. Originality/value This paper clarifies the role of information in improving debt repayment decisions.

The Credit Card Debt Puzzle: The Role of Preferences, Credit Access Risk, and Financial Literacy

Abstract. We use the 1979 National Longitudinal Survey of Youth to revisit what is termed the credit card debt puzzle: why consumers simultaneously co-hold high-interest credit card debt and low-interest assets that could be used to pay down this debt. Relative to individuals with no credit card debt but positive liquid assets, borrower-savers have very different perceptions of future credit access risk and use credit cards for precautionary motives. Moreover, changing perceptions about credit access risk are essential for predicting transitions among the two groups. Preferences and the composition of financial portfolios also play a role in these transitions.

Do Nudges Reduce Borrowing and Consumer Confusion in the Credit Card Market?

We study nudges that turn out to have precise null effects in reducing long‐run credit card debt. We test nudges across two field experiments covering 183,441 UK cardholders. Our first experiment studies nudges added to monthly credit card statements. Our second experiment studies letters and email nudges (separate from monthly statements) sent to cardholders who signed up to automatically pay the minimum required payment. In a follow‐up survey to our second experiment, we find that 96% of respondents underestimate the time it would take to fully repay a debt if the cardholder made only the minimum required payment. The nudges reduce this confusion, but underestimation remains overwhelmingly common.

The Co-Holding Puzzle: New Evidence from Transaction-Level Data

The tendency of consumers to hold low-yield liquid savings while simultaneously holding high-cost unsecured credit on revolving credit lines is a long standing

Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data

Abstract. This paper utilizes a unique data set of credit card accounts to analyze how people respond to credit supply. Increases in credit limits generate

Financial Literacy, Financial Education, and Downstream Financial Behaviors

Policy makers have embraced financial education as a necessary antidote to the increasing complexity of consumers' financial decisions over the last generation. We conduct a meta-analysis of the relationship of financial literacy and of financial education to financial behaviors in 168 papers covering 201 prior studies. We find that interventions to improve financial literacy explain only 0.1% of the variance in financial behaviors studied, with weaker effects in low-income samples. Like other education, financial education decays over time; even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention. Correlational studies that measure financial literacy find stronger associations with financial behaviors. We conduct three empirical studies, and we find that the partial effects of financial literacy diminish dramatically when one controls for psychological traits that have been omitted in prior research or when one uses an instrument for financial literacy to control for omitted variables. Financial education as studied to date has serious limitations that have been masked by the apparently larger effects in correlational studies. We envisage a reduced role for financial education that is not elaborated or acted upon soon afterward. We suggest a real but narrower role for “just-in-time” financial education tied to specific behaviors it intends to help. We conclude with a discussion of the characteristics of behaviors that might affect the policy maker's mix of financial education, choice architecture, and regulation as tools to help consumer financial behavior. This paper was accepted by Uri Gneezy, behavioral economics.

FinTech Adoption Across Generations: Financial Fitness in the Information Age

This paper analyzes how better access to financial information via new technology changes use of consumer credit and affects financial fitness. We exploit the introduction of a smartphone application for personal financial management as a source of exogenous variation. FinTech adoption reduces financial fee payments and penalties, but differs cross-sectionally in the population. After adopting the new technology, Millennials and members of Generation X incur fewer financial fees and penalties, whereas Baby Boomers do not benefit from the technological advance. Millennials and Gen Xers save fees by using their credit cards rather than overdrafts to manage short-term liabilities. Moreover, Millennials shift some of their spending to discretionary entertainment, whereas members of Generation X remain more austere. Finally, while men tend to adopt new technology and access information at a higher rate, the economic impact of access is larger for women.

Co-holding behaviour: unlocking the puzzle

This article seeks to explain why households decide to simultaneously hold both credit and savings products. Beyond the arguments of ignorance or behavioural biases commonly used in the literature,...

Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines

A debt trap occurs when someone takes on a high-interest-rate loan and is barely able to pay back the interest, and thus perpetually finds themselves in debt (often by refinancing). Studying such practices is important for understanding financial decision-making of households in dire circumstances, and also for setting appropriate consumer protection policies. We conduct a simple experiment in three sites in which we paid off high-interest moneylender debt of individuals. Most borrowers returned to debt within six weeks. One to two years after intervention, treatment individuals were borrowing at the same rate as control households.

DigitalOcean deleted 4 years of my data 6 days before my billing date over a $25

23 votes, 27 comments. So I'm still in shock and need to share this so nobody else goes through it. I've been with DigitalOcean for years. My billing…