Credit card risk behavior in a high interest rate context

Abstract

College students frequently exhibit little skill for using credit cards in a responsible manner. This chapter examines this issue in an emerging market and in a pioneering manner. University students (n = 769), in a high interest rate context, replied to a questionnaire about their habits in credit card use. Logit models revealed associations between personal characteristics and credit card use habits that reflect financially risky behavior. The main results show (i) a larger number of credit cards increase the probability of risk behavior and (ii) those students who alleged awareness of the card's interest rates were less inclined to engage in risk behavior. These results might prove informative to the financial industry as well as university managers and policymakers. This chapter points to the advisability, indeed necessity, to inform students on responsible use of financial products (notably credit cards) emphasizing the associated high interest rates. The findings regarding student behavior for credit card usage in emerging economies are both significant and relevant. Furthermore, financial literature, while stressing the importance of the topic, has not significantly examined emerging economies.