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Credit Counseling: A Substitute for Consumer Financial Literacy?

Author

Listed:
  • Richard Disney

    (Institute for Fiscal Studies and University of Sussex)

  • John Gathergood

    (Institute for Fiscal Studies and University of Nottingham)

  • J?rg Weber

    (Institute for Fiscal Studies)

Abstract

Is financial literacy a substitute or complement for financial advice? In this paper we analyze the decision by consumers to seek financial advice in the form of credit counseling concerning their credit and debt. Credit counseling is an important component of the consumer credit sector for consumers facing debt problems. We combine instrumental variable approaches to account for the endogeneity of an individual’s financial situation to financial literacy, and the endogeneity of financial literacy to exposure to credit counseling. Our results show credit counseling substitutes for financial literacy. Individuals with better financial literacy are 60% less likely to use credit counseling. These results suggest credit counseling provides a safety net for poor financial literacy.

Suggested Citation

  • Richard Disney & John Gathergood & J?rg Weber, 2014. "Credit Counseling: A Substitute for Consumer Financial Literacy?," IFS Working Papers W14/32, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:14/32
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    Cited by:

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    6. Marotta, Giuseppe, 2020. "Behind the success of dominated personal pension plans: sales force and financial literacy factors," Journal of Pension Economics and Finance, Cambridge University Press, vol. 19(4), pages 532-547, October.
    7. Oscar A. Stolper & Andreas Walter, 2017. "Financial literacy, financial advice, and financial behavior," Journal of Business Economics, Springer, vol. 87(5), pages 581-643, July.
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    9. Andrzej Cwynar & Wiktor Cwynar & Mieczysław Kowerski & Kamil Filipek & Przemysław Szuba, 2020. "Debt literacy and debt advice-seeking behaviour among Facebook users: the role of social networks," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 20(1), pages 1-33.
    10. Barthel, Anne-Christine & Lei, Shan, 2021. "Investment in financial literacy and financial advice-seeking: Substitutes or complements?," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 385-396.

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