Misuse Of Credit

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Consistent with the life-cycle hypothesis, expectations about future income leads to the misuse of credit (Kish, 2006). Soman and Cheema (2002) noted that if naïve consumers have access to large amounts of credit, they are likely to infer that their lifetime income will be high, which increases their willingness to spend beyond their means. Under this scenario, consumers utilize more credit in anticipation of their income increasing, which may or may not materialize. Optimism, overconfidence in financial knowledge, and mental accounting are additional reasons attributed to the misuse of credit. Moreover, the gamification of purchases entice more convenience users to make purchases using credit in an effort to acquire future discounts, free goods, airline tickets, rewards points, cash back, and prizes (Kish, 2006; Murthi, Steffes, & Rasheed, 2011). Overall, the findings of the researchers suggest that access to credit, the misuse of credit, and an increase in optimism regarding future …show more content…
However, studies indicate that debt-burdened pre-retirees are not influenced by the incentives offered by employers nor are they motivated to adequately save for their retirement. The incentives may include employer matching of employee contributions and provision that allow employees over the age of 50 to make catch-up contributions to their retirement savings plan. A common threshold applied to identify a debt-burdened pre-retiree is when the household debt service burden, measured as the ratio of consumer debt payments to income, exceeds 40 percent of income (Copeland, 2013; Adkisson & McFerrin, 2005). Significant levels of non-mortgage consumer debt are preventing plan participants from contributing to their retirement plan or preventing participants from contributing as much as they would like to contribute towards their retirement savings (Gunsauley,

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