Document Type
Article
Date of Original Version
2021
Department
Human Development and Family Science
Abstract
This study evaluated the link between financial literacy and household mortgage decisions. To this end, the longitudinal dataset for the US population from the Panel Study of Income Dynamics (PSID) was used. Evidence for links between financial literacy levels and (1) mortgage uptake, (2) mortgage interest rates, and (3) mortgage refinancing decisions were examined using the two waves (2015 and 2017) of PSID data, combined with the 2016 PSID supplementary questionnaire examining the measured financial literacy of household members. Our results revealed a positive link between financial literacy and mortgage possession and, additionally, between financial literacy and the subsequent decision to take out a mortgage. Moreover, higher financial literacy scores were associated with lower mortgage interests and a greater likelihood of mortgage refinancing. On average, a household that refinanced its mortgage was able to reduce its interest rate by almost 0.7 percentage points, providing evidence of the positive role of financial literacy in securing better mortgage terms.
Citation/Publisher Attribution
Bialowolski, P., Cwynar, A., Xiao, J.J. and Weziak‐Bialowolska, D. (2021), Consumer financial literacy and the efficiency of mortgage‐related decisions: New evidence from the Panel Study of Income Dynamics. Int J Consum Stud. Accepted Author Manuscript. https://doi.org/10.1111/ijcs.12646
Available at: https://doi.org/10.1111/ijcs.12646
Author Manuscript
This is a pre-publication author manuscript of the final, published article.
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