Abstract
This article examines the influence of financial knowledge and personality traits on risky borrowing behaviors among Iranian respondents. A proprietary dataset was used in this study. Logistic regression results indicated that numeracy and knowledge of the time value of money were negatively associated with two of the three risky borrowing behaviors (borrowing more than $1500 USD and use of rent-to-own). Conscientiousness was negatively related to the same two borrowing behaviors. Neuroticism negatively influenced use of payday lending. The article concludes with financial education policy suggestions for Iran and directions for future research.
Highlights
Previous research links a broad range of financial behaviors, including savings behaviors and portfolio choices, with financial literacy
The current paper examined the influence of both objective financial knowledge and personality traits on risky borrowing behaviors, defined in this research as borrowing relatively large amounts, using rent-to-own, and using payday loans
The logistic regression model used in this study is a maximum likelihood estimation (MLE) technique that is modeled in Equation (4) below: G(φ) = exp(φ)/[1 + exp(φ)]2 (4)
Summary
Previous research links a broad range of financial behaviors, including savings behaviors and portfolio choices, with financial literacy (see for example, [1,2]). This connection presumes, that households can and will use financial knowledge to make rational choices. The role of personality as an influence on financial behaviors has recently attracted the attention of researchers as an important factor that explains financial behaviors [3]. The current paper examined the influence of both objective financial knowledge and personality traits on risky borrowing behaviors, defined in this research as borrowing relatively large amounts, using rent-to-own, and using payday loans. While rent-to-own is not technically credit, it mimics credit with its requirement of regular payments and costs greater than paying with cash
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