Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/251940 
Year of Publication: 
2022
Series/Report no.: 
SAFE Working Paper No. 347
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
Households regularly fail to make optimal financial decisions. But what are the underlying reasons for this? Using two conceptually distinct measures of time inconsistency based on bank account transaction data and behavioral measurement experiments, we show that the excessive use of bank account overdrafts is linked to time inconsistency. By contrast, there is no correlation between a survey-based measure of financial literacy and overdraft usage. Our results indicate that consumer education and information may not suffice to overcome mistakes in households' financial decision-making. Rather, behaviorally motivated interventions targeting specific biases in decision-making should also be considered as effective policy tools.
Subjects: 
Household Finance
Paycheck Sensitivity
Fintech
Time Inconsistency
Time Preferences
Experiment
Behavioral Measurement
JEL: 
D14
D90
G51
G53
Document Type: 
Working Paper

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