Financial literacy and mortgage equity withdrawals

Abstract

a b s t r a c tMortgage equity withdrawals (MEW) are correlated with covariates consistent with a permanent income framework augmented for credit-constraints. We assess linkages between MEW and financial literacy/ education using the Health and Retirement Study (HRS) and Panel Study of Income Dynamics (PSID). We find that the financially literate are 3-5 percentage points less likely to withdraw housing equity via non-home equity loan mortgages using the HRS, while college graduates are 5 percentage points less likely than those without a high school degree in the PSID. Among those withdrawing housing equity in the PSID, college graduates extract significantly less equity and are less likely to have high levels of housing leverage after doing so.

Financial literacy, present bias and alternative mortgage products

“…Both studies find individuals with better financial literacy are more likely to choose an AMP. Using US data, other studies related to our work show individuals with poor understanding of portfolio risk are more likely to withdraw housing equity (Duca & Kumar, 2014). Gerardi et al (2013) find poor numerical ability in math tests predicts the likelihood of mortgage default.…”

Financial literacy and over-indebtedness in low-income households

“…A variety of studies have considered how financial literacy affects debt. Weak financial literacy caused by failing to understand interest rate calculations are correlated with higher debt burdens, incurring greater fees, and defaults and delinquency (Campbell 2006, Bucks and Pence 2008, Gerardi et al 2010, Disney and Gathergood 2013, Duca and Kumar 2014. 3 Financial literacy also plays a role in explaining why so many individuals make use of high-cost borrowing methods.…”

Effect of Emotional Intelligence on Investment Decision Making With a Moderating Role of Financial Literacy

“…There is a positive relationship between education level and literacy. There is a strong relationship between the general education and financial literacy (Duca & Kumar, 2014). Educated people know well the changing aspects of financial market than uneducated people.…”