New Economics Papers
on Microfinance
Issue of 2009‒03‒22
two papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. How does credit access affect children's time allocation? Evidence from rural India By Fuwa, Nobuhiko; Ito, Seiro; Kudo, Kensuke; Kurosaki, Takashi; Sawada, Yasuyuki
  2. Debt Literacy, Financial Experiences, and Overindebtedness By Annamaria Lusardi; Peter Tufano

  1. By: Fuwa, Nobuhiko; Ito, Seiro; Kudo, Kensuke; Kurosaki, Takashi; Sawada, Yasuyuki
    Abstract: Using a unique dataset obtained from rural Andhra Pradesh, India that contains direct observations of household access to credit and detailed time use, results of this study indicate that credit market failures lead to a substantial reallocation of time used by children for activities such as schooling, household chores, remunerative work, and leisure. The negative effects of credit constraints on schooling amount to a 60% decrease of average schooling time. However, the magnitude of decrease due to credit constraints is about half that of the increase in both domestic and remunerative child labor, the other half appearing to come from a reduction in leisure.
    Keywords: Child labor, Schooling, Gender bias, Credit constraint, Household models
    JEL: I21 I22 J22 O12 O16
    Date: 2009–01
  2. By: Annamaria Lusardi; Peter Tufano
    Abstract: We analyze a national sample of Americans with respect to their debt literacy, financial experiences, and their judgments about the extent of their indebtedness. Debt literacy is measured by questions testing knowledge of fundamental concepts related to debt and by self-assessed financial knowledge. Financial experiences are the participants’ reported experiences with traditional borrowing, alternative borrowing, and investing activities. Overindebtedness is a self-reported measure. Overall, we find that debt literacy is low: only about one-third of the population seems to comprehend interest compounding or the workings of credit cards. Even after controlling for demographics, we find a strong relationship between debt literacy and both financial experiences and debt loads. Specifically, individuals with lower levels of debt literacy tend to transact in high-cost manners, incurring higher fees and using high-cost borrowing. In applying our results to credit cards, we estimate that as much as one-third of the charges and fees paid by less knowledgeable individuals can be attributed to ignorance. The less knowledgeable also report that their debt loads are excessive or that they are unable to judge their debt position.
    JEL: D91
    Date: 2009–03

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