Self-control, financial literacy and the co-holding puzzle

We use UK household survey data incorporating measures of financial literacy and behavioural characteristics to analyse the puzzling co-existence of high cost revolving consumer credit alongside low yield liquid savings in household balance sheets, which we term the 'co-holding puzzle'. Approximately 20% of households in our sample co-hold, on average, £6,500 of revolving consumer credit alongside £8,000 of liquid savings. Co-holders are typically more financially literate, with above average income and education. However, we show co-holding is also associated with impulsive spending behaviour on the part of the household. Our results lend empirical support to theoretical models in which sophisticated households co-hold as a means of managing a self-control problem.