Is financial literacy a substitute or complement for financial advice? We analyse the decision by consumers to seek financial advice in the form of credit counseling. Credit counseling is an important component of the consumer credit sector for consumers facing debt problems. Our analysis accounts for the endogeneity of an individual’s financial situation to financial literacy, and the endogeneity of financial literacy to exposure to credit counseling. Results show counseling substitutes for financial literacy. Individuals with better literacy are 60% less likely to use credit counseling. These results suggest that credit counseling provides a safety net for poor financial literacy.
Authors
Research Associate University of Sussex
Richard is an IFS Research Associate, a Part-time Professor of Economics at the University of Sussex and a Visiting Professor of Economics at UCL.
Journal article details
- DOI
- 10.1017/S1474747215000219
- Publisher
- Cambridge University Press
- Issue
- October 2015
Suggested citation
Disney, R. (2015). 'Credit counseling: a substitute for consumer financial literacy?' (2015)
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