When Managing Debt, It’s the Thought That Counts

NEW YORK (MainStreet) -- In debt management, as with gift-giving, apparently it’s the thought that counts.

A new study from the University of Nebraska-Lincoln shows that what you think you know about finance is every bit as important as what you actually know when managing a credit card account. In fact, the more you think you know about money management, the more likely you're a good card manager and have a better credit rating.

Economists Sam Allgood and William Walstad, who led the study, reached that conclusion by studying credit card payment patterns in two ways: how much study participants actually knew about financial issues, and how much study participants thought they knew about financial issues.

“Before beginning, we hypothesized two possibilities: people would be over-confident and this would lead them to make bad decisions or that people need confidence to act on the knowledge they possess,” Allgood explained in a statement. “Our study suggests that it is the latter. You must have actual knowledge to make good personal financial decisions, but people are not willing to act on that knowledge unless they also perceive themselves to be knowledgeable.”

The study of 27,500 cardholders in the U.S. tracked five credit-card behaviors: paying credit card bills in full, carrying a credit card balance month-to-month, paying just the minimum payment, paying late fees and exceeding a card’s credit limit.

The survey notes that “in all cases,” survey participants who “perceived” their financial acumen as high exhibited more responsible credit card behavior than those who believed their financial savvy was “low,” even when their actual credit knowledge was the same.

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