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Trust and Household Debt
[Consumer bankruptcy and default: the role of individual social capital]

Author

Listed:
  • Danling Jiang
  • Sonya S Lim

Abstract

Using a large sample of US individuals, we show that individuals with higher levels of trust have lower likelihoods of default in household debt and higher net worth. The effect is driven by trust values inherited from cultural and family backgrounds more than by trust beliefs about others. We demonstrate a causal impact of trust on financial outcomes by extracting the component of trust correlated with early-life experiences. The effect of trust is more pronounced among females, those with lower education, lower income, lower financial literacy, and higher debt-to-income ratio. Further evidence suggests that enhancing individuals’ trust, to the right amount, can improve household financial well-being.

Suggested Citation

  • Danling Jiang & Sonya S Lim, 2018. "Trust and Household Debt [Consumer bankruptcy and default: the role of individual social capital]," Review of Finance, European Finance Association, vol. 22(2), pages 783-812.
    • Handle: RePEc:oup:revfin:v:22:y:2018:i:2:p:783-812.
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    File URL: http://hdl.handle.net/10.1093/rof/rfw055
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    References listed on IDEAS

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    Cited by:

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    4. Michiel Bijlsma & Carin Cruijsen & Nicole Jonker & Jelmer Reijerink, 2024. "What Triggers Consumer Adoption of Central Bank Digital Currency?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 65(1), pages 1-40, February.
    5. Lei, Jie & Bai, Yiyi & Kong, Dongmin, 2024. "Bank competition and household informal credit," International Review of Financial Analysis, Elsevier, vol. 94(C).

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    More about this item

    Keywords

    Trust; Trustworthiness; Household debt; Culture; Early-life experiences;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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