The Age of Reason: Financial Decisions Over the Lifecycle

Abstract

In cross-sectional data sets from ten credit markets, we find that middle-aged adults borrow at lower interest rates and pay fewer fees relative to younger and older adults. Fee and interest payments are minimized around age 53. The measured effects are not explained by observed risk characteristics. We discuss several leading factors that may contribute to these effects, including age-related changes in experience and cognitive function, selection effects, and cohort effects.

Skilled But Unaware of It: Occurrence and Potential Long-Term Effects of Females' Financial Underconfidence

“…A number of studies have examined the impact of financial knowledge on wealth and, generally, find a positive association (Lusardi, 2004;Behrman et al, 2012;Gustman et al, 2012;Van Rooij et al, 2012). The corresponding negative effect of a lack of financial knowledge has been attributed to financial mistakes such as paying too high fees or interest on credit card debt and home equity loans (Agarwal et al, 2009), not participating in financial markets (Van Rooij et al, 2011), or holding undiversified portfolios (Calvet et al, 2007;Von Gaudecker, 2015). Of the few studies that consider the effect of excess confidence, Van Rooij et al (2012) show that underconfidence has an individual, negative impact, whereas overconfidence does not appear to influence household wealth.…”

Determinants of Financial Literacy among the National University of Lesotho Students

“…An increase in age comes with the accumulation of knowledge based on practical life experiences (Agarwal et al, 2009). Therefore, various studies have found age to be an important factor in explaining financial literacy.…”

Limited and Varying Consumer Attention: Evidence from Shocks to the Salience of Bank Overdraft Fees

“…One can view our paper as studying how investment-and borrowing-in checking accounts responds to uninformative attention shocks; Karlan et al (2012) finds that uninformative reminders affect deposit behavior in savings accounts. Our focus on the dynamics of penalty fee payments complements Haselhun et al (2012) and Agarwal et al (2011), with those papers estimating direct links between incurring fees now and incurring them later that could come from learning. Our work shows that fee-paying is affected by shocks to attention that contain no information about recent behavior or the structure of fees for a particular individual.…”