Objective Financial Knowledge, Subjective Financial Knowledge, and Credit Card Mismanagement: Does Overconfidence Hurt?

Abstract

This article examines the association between objective and subjective financial knowledge and four types of credit card mismanagement as measured by making minimum payments only in some months, incurring late fees, being over the limit, and taking cash advances. The results of the probit regression models using data from 2018 to 2021 National Financial Capability Study reveal that the relationship between subjective financial knowledge and credit card mismanagement is generally convex instead of monotonic. This study contributes to the current literature by finding that subjective financial knowledge is positively associated with credit card mismanagement. The results also show that objective financial knowledge is negatively related to credit card mismanagement. Overconfidence about financial knowledge is positively associated with credit card mismanagement. Having fewer credit cards and setting aside a 3-month emergency fund lower the probability of mismanaging credit cards.