Does Responsibility for Financial Tasks Influence Credit Knowledge and Behavior?: Evidence from a Panel of US Couples

Abstract

Managing financial matters, an important household task, is often handled by one partner. The decisions executed by the household financial manager have important implications for household financial well-being. The division of responsibility contributes to the accumulation of financial knowledge and experiences that build financial capability. Using unique panel data from the Survey of Consumer Payment Choice, this study examines who couples choose to manage household finances and how the division of financial responsibility influences credit knowledge and behavior. We find that partners who earn more are more likely to be responsible for managing savings and investments as well as paying monthly bills controlling for individual- and household-level fixed characteristics, like ability. We also find that the partner who defers responsibility for savings and investing is less likely to know their credit rating. This finding holds when controlling for measured financial literacy. We do not find evidence that deferring financial responsibility is associated with estimated credit score nor credit card repayment behavior.

Appendix: Survey of Consumer Payment Choice (SCPC) Items

Responsibility for household finances:

• In your household, how much responsibility do you have for paying monthly bills (rent or mortgage, utilities, cell phone, etc.)?

  • None or almost none, Some, Shared equally with other household members, Most, All or almost all

• In your household, how much responsibility do you have for making decisions about saving and investments (whether to save, how much to save, where to invest, how much to borrow)?

  • None or almost none, Some, Shared equally with other household members, Most, All or almost all

Income rank:

• What does your own personal income rank within your household?

  • Highest in my household

  • About equal to the highest (roughly the same as another household member)

  • Second highest

  • Third highest or lower

Financial Literacy Quiz:

• Compound interest: “Suppose you had $100 in a savings account and the interest rate is 20% per year and you never withdraw money or interest payments. After 5 years, how much would you have in this account in total?”;

• Inflation: “Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?”;

• Diversification: “True or False. Buying a single stock [mutual fund] usually provides a safer return than a mutual fund [single stock].”