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Debt and Financial Expectations: An Individual- and Household-Level Analysis |
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| Authors: | Sarah Brown Gaia Garino Karl Taylor Stephen Wheatley Price |
| Affiliation: | Brown:;Senior Lecturer in Economics, University of Leicester, Leicester, LE1 7RH, U.K. Phone +44(116)2522827, Fax +44(116)2522905, E-mail Garino:;Lecturer in Economics, University of Leicester, Leicestar, LE1 7RH, U.K. Phone +44(116)2522882, Fax +44(116)2522908, E-mail Taylor:;Lecturer in Economics, University of Leceister, Leicester, LE1 7RH, U.K. Phone +44(116)2522908, Fax +44(116)2522908, E-mail Price:;Senior Lecturer in Economics, University of Leicester, Leicester, LE1 7RH, U.K. Phone +44(116)2525645, Fax +44(116)2522908, E-mail |
| Abstract: | In this article we show that optimistic financial expectations impact positively on both the quantity of debt and the growth in debt at the individual and household levels. Our theoretical model shows that this association is predicted under a variety of plausible scenarios. In the empirical analysis we explore the determinants of debt and of growth in debt using British data. We find convincing support for our theoretical priors and show that it is optimistic financial expectations per se that are important in influencing debt, rather than the accuracy of individuals' predictions regarding their future financial situation. |
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