Borrowing on the Wrong Credit Card? Evidence from Mexico
- (pp. 1335-61)
AbstractWe establish new facts about the way consumers allocate debt among their credit cards using data for a representative sample of cardholders in Mexico. We find that relative prices are weak predictors of the allocation of debt, purchases, and payments. Consumers allocate a large fraction of their debt to high-interest cards, incurring a cost of 31 percent above the minimum. Using an experiment, we find that consumers do not substitute in the price margin, although they respond to salient temporary low-interest offers. We conclude that limited attention and mental accounting best rationalize our results and discuss implications for the market.
Citation2017. "Borrowing on the Wrong Credit Card? Evidence from Mexico." American Economic Review, 107 (4): 1335-61. DOI: 10.1257/aer.20120273
- D14 Household Saving; Personal Finance
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- O12 Microeconomic Analyses of Economic Development
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance