Financial literacy and consumer credit portfolios

We use survey data from a sample of UK households to analyse the relation ship between financialliteracy and consumer credit portfolios.We show that individ uals who borrow on consumer credit exhibit worse financial literacy than those who do not.Borrowers with poor financialliteracy hold higher shares of high cost credit (such as home collected credit,mail order catalogue debt and payday loans)than those with higher literacy. We also show that individuals with poor financialliteracy are more likely to lack confidence when interpreting credit terms,and to exhibit confusion over financialconcepts.They are also less likely to engage in behaviour which might help them to improve their awareness of the credit market.