Intrahousehold Frictions, Anchoring, and the Credit Card Debt Puzzle

Abstract

Abstract I study how intra-household frictions and anchoring contribute to the credit card debt puzzle, the co-holding of high-cost debt and low-yield liquid assets. First, I find couples co-hold 42 percent more as units than as individuals relative to income. Moreover, in a natural experiment, couples do not cooperate to reduce high-cost debt, suggesting that intra-household frictions contribute to co-holding. Second, I find individuals who regularly make credit card debt payments equal to or near the minimum account for 59 percent of individual co-holding. The evidence suggests anchoring to the minimum payment contributes to co-holding via these low payments.