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Debt and Financial Expectations: An Individual- and Household-Level Analysis

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  • Sarah Brown
  • Gaia Garino
  • Karl Taylor
  • Stephen Wheatley Price

Abstract

In this article we show that optimistic financial expectations impact positively on both the quantity of debt and the growth in debt at the individual and household levels. Our theoretical model shows that this association is predicted under a variety of plausible scenarios. In the empirical analysis we explore the determinants of debt and of growth in debt using British data. We find convincing support for our theoretical priors and show that it is optimistic financial expectations per se that are important in influencing debt, rather than the accuracy of individuals' predictions regarding their future financial situation. (JEL D18, D84, D91) Copyright 2005, Oxford University Press.

Suggested Citation

  • Sarah Brown & Gaia Garino & Karl Taylor & Stephen Wheatley Price, 2005. "Debt and Financial Expectations: An Individual- and Household-Level Analysis," Economic Inquiry, Western Economic Association International, vol. 43(1), pages 100-120, January.
    • Handle: RePEc:oup:ecinqu:v:43:y:2005:i:1:p:100-120
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    References listed on IDEAS

    as
    1. Van Raaij, W. Fred & Gianotten, Henk J., 1990. "Consumer confidence, expenditure, saving, and credit," Journal of Economic Psychology, Elsevier, vol. 11(2), pages 269-290, June.
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    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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