Borrowing on the Wrong Credit Card? Evidence from Mexico
Alejandro Ponce, Enrique Seira, Guillermo Zamarripa
American Economic Review · 2017 · Volume 107 · Issue 4
Abstract
We establish new facts about the way consumers allocate debt among their credit cards using data for a representative sample of cardholders in Mexico. We find that relative prices are weak predictors of the allocation of debt, purchases, and payments. Consumers allocate a large fraction of their debt to high-interest cards, incurring a cost of 31 percent above the minimum. Using an experiment, we find that consumers do not substitute in the price margin, although they respond to salient temporary low-interest offers. We conclude that limited attention and mental accounting best rationalize our results and discuss implications for the market.
Keywords
Household Saving, Personal Finance, Banks, Depository Institutions, Micro Finance Institutions, Mortgages, Microeconomic Analyses of Economic Development, Economic Development: Financial Markets, Saving and Capital Investment, Corporate Finance and Governance
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