Working Paper: NBER ID: w13191
Authors: Sumit Agarwal; John C. Driscoll; Xavier Gabaix; David Laibson
Abstract: In cross-sectional data sets from ten credit markets, we find that middle-aged adults borrow at lower interest rates and pay fewer fees relative to younger and older adults. Fee and interest payments are minimized around age 53. The measured effects are not explained by observed risk characteristics. We discuss several leading factors that may contribute to these effects, including age-related changes in experience and cognitive function, selection effects, and cohort effects.
Keywords: Financial decisions; Lifecycle; Age-related effects
JEL Codes: D1; D8; G2; J14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| age (J14) | financial outcomes (G39) |
| age (J14) | borrowing at lower interest rates (G21) |
| age (J14) | paying fewer fees (G51) |
| age (J14) | minimum fee and interest payments (E49) |
| cognitive decline (D91) | financial mistakes (G51) |
| experience (Y60) | financial mistakes (G51) |
| active participation in financial markets (G19) | systematic differences (P50) |
| making a rate-changing mistake (RCM) (F31) | increase in APR (E43) |