Financial literacy and subprime mortgage delinquency: Evidence from a survey matched to administrative data

Arbeitspapier

The exact cause of the massive defaults and foreclosures in the U.S. subprime mortgage market is still unclear. This paper investigates whether a particular aspect of borrowers' financial literacy - their numerical ability - may have played a role. We measure several aspects of financial literacy and cognitive ability in a survey of subprime mortgage borrowers who took out mortgages in 2006 or 2007 and match these measures to objective data on mortgage characteristics and repayment performance. We find a large and statistically significant negative correlation between numerical ability and various measures of delinquency and default. Foreclosure starts are approximately two-thirds lower in the group with the highest measured level of numerical ability compared with the group with the lowest measured level. The result is robust to controlling for a broad set of sociodemographic variables and not driven by other aspects of cognitive ability or the characteristics of the mortgage contracts. Our results raise the possibility that limitations in certain aspects of financial literacy played an important role in the subprime mortgage crisis.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 2010-10

Klassifikation und Themen

• Klassifikation: Wirtschaft
• Thema: subprime mortgage ; delinquency ; default ; financial literacy ; cognitive ability ; survey

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Gerardi, Kristopher ; Goette, Lorenz ; Meier, Stephan
• Ereignis: Veröffentlichung
• (wer): Federal Reserve Bank of Atlanta
• (wo): Atlanta, GA
• (wann): 2010

Weitere Informationen

• Handle: http://hdl.handle.net/10419/70651
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ