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Author: Melzer, Brian
Resulting in 2 citations.
1. Kuhnen, Camelia M.
Melzer, Brian
Non-Cognitive Abilities and Loan Delinquency: The Role of Self-Efficacy in Avoiding Financial Distress
Presented: Berkeley, CA, Haas School of Business Research Seminar, University of California Berkeley, April 22, 2015
Cohort(s): Children of the NLSY79, NLSY79 Young Adult
Publisher: University of California - Berkeley
Keyword(s): Assets; Debt/Borrowing; Peabody Individual Achievement Test (PIAT- Math); Pearlin Mastery Scale; Risk Perception; Risk-Taking

Permission to reprint the abstract has not been received from the publisher.

Research on household financial decisions has largely focused on the importance of cognitive abilities in decision-making, emphasizing that IQ and mathematical ability predict stock market participation and the avoidance of financial mistakes. This paper takes a broader perspective by exploring the role of non-cognitive abilities in household finance decisions. Within the fields of labor and education economics, non-cognitive traits such as self-efficacy – which measures the extent to which people believe they can influence future outcomes through their actions – predict substantial differences in school achievement and employment outcomes. Using longitudinal household survey data, here we show that people's self-efficacy measured in childhood predicts differences in the likelihood of being in financial distress during adulthood. Individuals with better self-efficacy scores early in life are significantly less likely as adults to be delinquent on loans, to have assets repossessed, or to lose access to credit. These effects of self-efficacy are not explained by differences in time or risk preferences, demographic characteristics, cognitive ability, educational attainment or income.
Note: This paper was also presented at the Frontiers in Finance conference, Banff, Alberta, June 2015.
Bibliography Citation
Kuhnen, Camelia M. and Brian Melzer. "Non-Cognitive Abilities and Loan Delinquency: The Role of Self-Efficacy in Avoiding Financial Distress." Presented: Berkeley, CA, Haas School of Business Research Seminar, University of California Berkeley, April 22, 2015.
2. Kuhnen, Camelia M.
Melzer, Brian
Noncognitive Abilities and Financial Delinquency: The Role of Self‐Efficacy in Avoiding Financial Distress
Journal of Finance 73,6 (December 2018): 2837-2869.
Also: https://onlinelibrary.wiley.com/doi/10.1111/jofi.12724
Cohort(s): NLSY79, NLSY79 Young Adult
Publisher: Wiley Online
Keyword(s): Credit/Credit Constraint; Debt/Borrowing; Financial Behaviors/Decisions; Noncognitive Skills; Pearlin Mastery Scale

Permission to reprint the abstract has not been received from the publisher.

We investigate a novel determinant of financial distress, namely, individuals' self‐efficacy, or belief that their actions can influence the future. Individuals with high self‐efficacy are more likely to take precautions that mitigate adverse financial shocks. They are subsequently less likely to default on their debt and bill payments, especially after experiencing negative shocks such as job loss or illness. Thus, noncognitive abilities are an important determinant of financial fragility and subjective expectations are an important factor in household financial decisions.

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Bibliography Citation
Kuhnen, Camelia M. and Brian Melzer. "Noncognitive Abilities and Financial Delinquency: The Role of Self‐Efficacy in Avoiding Financial Distress." Journal of Finance 73,6 (December 2018): 2837-2869.