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The Effect of Student Loan Debt on Emergency Savings and the Moderating Role of Financial Knowledge: Evidence from the U.S. Survey of Household Economics and Decisionmaking

Author

Listed:
  • Thomas Korankye

    (Personal and Family Financial Planning Program, Norton School of Human Ecology, University of Arizona, Tucson, AZ 85721, USA)

  • Blain Pearson

    (Department of Finance and Economics, Coastal Carolina University, Conway, SC 29526, USA)

  • Peter Agyemang-Mintah

    (College of Business, Zayed University, Abu Dhabi P.O. Box 144534, United Arab Emirates)

Abstract

This study examines data from the U.S. 2018 and 2019 Survey of Household Economics and Decision making (SHED) to understand the association between student loan debt and emergency-saving decisions, including the moderating role of financial knowledge. Controlling self-selection bias through a propensity score and coarsened exact matching approach, the findings reveal that individuals with student loan debt are less likely to save for financial emergencies. The findings also show that financial knowledge is positively associated with a higher likelihood of having emergency savings. Furthermore, the results from the moderating analysis indicate a statistically significant interaction effect. Based on the empirical results and the corresponding interaction plots, the findings suggest that targeted financial education may lead to improved financial outcomes for student loan borrowers, rather than assuming that such education occurred prior to a loan application.

Suggested Citation

  • Thomas Korankye & Blain Pearson & Peter Agyemang-Mintah, 2024. "The Effect of Student Loan Debt on Emergency Savings and the Moderating Role of Financial Knowledge: Evidence from the U.S. Survey of Household Economics and Decisionmaking," JRFM, MDPI, vol. 17(9), pages 1-18, September.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:9:p:420-:d:1482776
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    References listed on IDEAS

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    3. Annamaria Lusardi & Olivia S. Mitchell, 2017. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-31, September.
    4. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," NBER Chapters, in: Investment in Human Beings, pages 9-49, National Bureau of Economic Research, Inc.
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    6. Thomas Korankye & Charlene M. Kalenkoski, 2021. "The Effect of Households’ Student Debt on Life Satisfaction," Journal of Family and Economic Issues, Springer, vol. 42(4), pages 757-772, December.
    7. Patryk Babiarz & Cliff Robb, 2014. "Financial Literacy and Emergency Saving," Journal of Family and Economic Issues, Springer, vol. 35(1), pages 40-50, March.
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