Beiträge zur Jahrestagung des Vereins für Socialpolitik 2014: Evidenzbasierte Wirtschaftspolitik - Session: Causes and Consequences of Financial (Il)literacy No. G10-V2
We analyze whether the frequent use of credit lines is rational or influenced by behavioral traits of households. We consider the special case of Germany where credit lines on current accounts are available to 80% of the population. We document that the excessive usage of costly credit lines is more likely for people who give intuitive but incorrect answers in the Cognitive Reflection Test. Our analysis of a rich sample of household data also provides evidence that a higher level of financial literacy can help to improve consumer credit choices.