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The influence of uncertainty and liquidity constraints on liquid asset holdings of credit card revolvers

Bi, Lan
http://rave.ohiolink.edu/etdc/view?acc_num=osu1127153217

Abstract Details

2005, Doctor of Philosophy, Ohio State University, Family Resource Management.
The behavior of simultaneously holding liquid assets and credit card debt looks puzzling because the cost of borrowing is higher than the return of saving. A review of the modern models of saving and consumption introducing uncertainty and liquidity constraints into the process of utility maximization suggests that a precautionary saving model may explain the saving behavior of credit card revolvers. The main purpose of this dissertation was to explore the credit card revolver’s behavior of holding substantial levels of liquid assets. This research includes two stages. In the first stage, factors associated with the likelihood of being financially sufficient revolvers are investigated. Results from this step support precautionary saving motives as explanations for the behavior of simultaneously saving and borrowing. Therefore, based on a precautionary saving model, the second stage further explores how factors related to uncertainty and liquidity constraints affect the level of liquid assets held by credit card revolvers. In addition, an objective precautionary saving model is compared with a subjective precautionary saving model. The data used for the analyses were obtained from the 2001 Survey of Consumer Finances. A logistic regression is used to estimate the likelihood of being financially sufficient revolvers, compared to being financially sufficient convenience users. An OLS regression is used to study the relationship between precautionary saving and factors measuring uncertainty and liquidity constraints. In addition, an OLS regression with subjective precautionary saving as the dependent variable is examined. Empirical results show that having precautionary saving motives not only increases the likelihood of being financially sufficient revolvers, but also increases the level of liquid assets. This research suggests that revolvers save for precautionary purposes, though this may not be an optimal financial management decision. This study shows that expenditure needs relative to household income, which determine the amount of money the household can save, affect revolver’s actual holding of precautionary saving, regardless of their subjective level of precautionary saving. Therefore, estimated coefficients of variables related to uncertainty and liquidity constraints may not be consistent with what the normative economic theory predicts.
Catherine Montalto (Advisor)
186 p.
credit card revolvers; behavior of simultaneously saving and borrowing; precautionary saving; saving under uncertainty and liquidity constraints; family financial management; Survey of Consumer Finances

Recommended Citations

Citations

  • Bi, L. (2005). The influence of uncertainty and liquidity constraints on liquid asset holdings of credit card revolvers [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1127153217

    APA Style (7th edition)

  • Bi, Lan. The influence of uncertainty and liquidity constraints on liquid asset holdings of credit card revolvers. 2005. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1127153217.

    MLA Style (8th edition)

  • Bi, Lan. "The influence of uncertainty and liquidity constraints on liquid asset holdings of credit card revolvers." Doctoral dissertation, Ohio State University, 2005. http://rave.ohiolink.edu/etdc/view?acc_num=osu1127153217

    Chicago Manual of Style (17th edition)

osu1127153217
972
© 2005, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.