The role of housing net worth in determining household credit limits

38 Pages Posted: 8 Sep 2015 Last revised: 10 Nov 2021

See all articles by Kyoung Jin Choi

Kyoung Jin Choi

University of Calgary - Haskayne School of Business

Hyeng Keun Koo

Ajou University - Department of Business Administration

Byung Hwa Lim

Department of Fintech, SKK Business School, Sungkyunkwan University

Jane Yoo

Ajou University - School of Business

Date Written: November 10, 2021

Abstract

This study examines the determinants of households' unsecured credit limits using the Survey of Consumer Finances published between 2004 and 2016. We estimate the marginal effects of household finance variables, demographic characteristics, and financial health conditions by using the generalized method of moment model. In the GMM estimation, we use instrumental variables of current net worth to resolve the endogenous variable problem that arises from the bicausal relationship between net worth and credit limits. We find that the marginal effect of net worth is significant in determining credit limits, while the effect of income is less significant or negligible. Housing net worth is even more significant for explaining credit limits than net worth itself. Our results imply that borrowers' willingness to repay unsecured debt is better inferred from net worth than from income.

Keywords: Unsecured Credit limit, Net worth, Income, Willingness to repay, Housing net worth, Endogeneity, Instrumental Variable

JEL Classification: D11, D12, D91, E21, G11

Suggested Citation

Choi, Kyoung Jin and Koo, Hyeng Keun and Lim, Byung Hwa and Yoo, Jane, The role of housing net worth in determining household credit limits (November 10, 2021). Available at SSRN: https://ssrn.com/abstract=2657352 or http://dx.doi.org/10.2139/ssrn.2657352

Kyoung Jin Choi

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

HOME PAGE: http://sites.google.com/site/kyoungjinchoiecon/

Hyeng Keun Koo

Ajou University - Department of Business Administration ( email )

206 Worldcup-ro
Yeongtong-gu
Suwon, 443-749
Korea, Republic of (South Korea)

Byung Hwa Lim

Department of Fintech, SKK Business School, Sungkyunkwan University ( email )

25-2, SUNGKYUNKWAN-RO, JONGNO-GU
Seoul, Seoul 03063
027600450 (Phone)

Jane Yoo (Contact Author)

Ajou University - School of Business ( email )

206 Worldcup-ro
Yeongtong-gu
Suwon
Korea, Republic of (South Korea)

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