The Effect of Bank Account Ownership on Credit and Consumption: Evidence from the United Kingdom

Abstract

This article examines the causal effects of bank account ownership on credit access and consumption by isolating an exogenous change in account ownership produced by an electronic transfer mandate in the universal UK Child Benefit program. Comparing households with and without children finds that the mandate substantially affected banking behavior, with an 8.6% relative increase in transaction account ownership. When households transition into account ownership, results indicate large increases in credit card ownership (89%), and household durable goods (55%). Similar changes are not seen in loan use, weekly expenditures, or vehicle ownership. Additional evidence from a panel data set indicate declines in the use of fringe bank credit, informal loans, and debt after households transition into bank account ownership. In total, evidence suggests that an important effect of owning a bank account is improved access to credit cards which enables durable good consumption.