Invest
This mental trait could help you get a loan
As behavioural economics is increasingly incorporated into the finance sector, lenders could look to our thought patterns when deciding whether to extend credit or not.
This mental trait could help you get a loan
As behavioural economics is increasingly incorporated into the finance sector, lenders could look to our thought patterns when deciding whether to extend credit or not.
According to new research from the University of Sydney Business School, people who possess a trait known as “mental accounting” are more likely to be able to repay loans than others.
This means assessments measuring this trait could become a viable option for customers without a credit history.
“Mental accounting is a tendency to separate money into different mental accounts based on the source of the money and the importance of its intended purpose,” said senior lecturer Quan Gan.
“For example, people with this behavioural bias might divide their money into mental accounts such as rent, food, entertainment, travel and loan repayments.
“They are unlikely to spend money set aside for loan repayments on entertainment or travel when those accounts are exhausted.”
This trait is more common in people older than 40 and people with higher levels of education.
Mr Gan said this behaviour could be used as a measure of creditworthiness, noting that those with a bias towards mental accounting are also more likely to pay debts earlier.
“Given a choice between higher interest rates over a shorter repayment period and lower rates over a longer period, these people will opt to pay more because they don’t like debt,” he explained.
The research was informed by a study carried out in Vietnam with fintech firm Rich Data Corporation. The researchers, Mr Gan, associate professor Eliza Wu and PhD candidate Bei Chen, analysed study participants’ Facebook, Twitter and Google Plus accounts to gain an insight into spending priorities.
“Vietnam is a country with underdeveloped individual credit records and lenders are looking for innovative ways to determine the creditworthiness of a customer from sources of information other than the typical credit scores used in developed countries,” Mr Gan said.
Rich Data Corporation’s CEO Ada Guan added that the research could be utilised through the use of behavioural economics, artificial intelligence and alternative data sources to extend credit to people with short or no credit histories.
Ms Guan said the results allow lenders to differentiate credit risk outside of credit data.
“Combining with machine learning, we will be able to build highly predictable credit scoring models for these people,” she said.
Stock market
The pros and cons of DIY investing
“Social trading” is being flagged as a very real issue now affecting the Australian stock market – especially as low-cost stock trade platforms gain popularity. ...Read more
Stock market
Where to find dividends in a low-rate environment
Australian investors who are income-focused are still able to find strong dividend-paying stocks, but the market is changing, an expert has said. ...Read more
Stock market
Did investors overreact to the COVID-19 pandemic?
The economic downturn has not hit many sectors of the economy as hard as first predicted, with the reporting season revealing that many sectors will recover quickly, an investment fund has revealed. ...Read more
Stock market
Market volatility not a worry for Millennial investors
In spite of COVID-19-related volatility, Australian investors aged between 24 and 39 remain bullish about the current sharemarket. ...Read more
Stock market
Why investors will miss their mark for the next 5 years
Australian investors are urged to rethink their investment targets, with the COVID-19 recovery likely to have an impact on returns, new research has found. ...Read more
Stock market
Standing strong in a crisis, ethical investments are here to stay
Ethical investments are more than just a short-term fad, an investment manager has advised. ...Read more
Stock market
Sovereign wealth fund goes negative for the first time since the GFC
The Future Fund has posted a rare negative return for 2020 and warned that a “challenging and volatile” economic climate could hurt previously strong gains moving forward. ...Read more
Stock market
Don’t worry about dividends: Stocks still going strong
Dividends are still up for grabs for active investors willing to wade through the major headlines and an abundance of market negativity, an investment expert has flagged. ...Read more
Stock market
The pros and cons of DIY investing
“Social trading” is being flagged as a very real issue now affecting the Australian stock market – especially as low-cost stock trade platforms gain popularity. ...Read more
Stock market
Where to find dividends in a low-rate environment
Australian investors who are income-focused are still able to find strong dividend-paying stocks, but the market is changing, an expert has said. ...Read more
Stock market
Did investors overreact to the COVID-19 pandemic?
The economic downturn has not hit many sectors of the economy as hard as first predicted, with the reporting season revealing that many sectors will recover quickly, an investment fund has revealed. ...Read more
Stock market
Market volatility not a worry for Millennial investors
In spite of COVID-19-related volatility, Australian investors aged between 24 and 39 remain bullish about the current sharemarket. ...Read more
Stock market
Why investors will miss their mark for the next 5 years
Australian investors are urged to rethink their investment targets, with the COVID-19 recovery likely to have an impact on returns, new research has found. ...Read more
Stock market
Standing strong in a crisis, ethical investments are here to stay
Ethical investments are more than just a short-term fad, an investment manager has advised. ...Read more
Stock market
Sovereign wealth fund goes negative for the first time since the GFC
The Future Fund has posted a rare negative return for 2020 and warned that a “challenging and volatile” economic climate could hurt previously strong gains moving forward. ...Read more
Stock market
Don’t worry about dividends: Stocks still going strong
Dividends are still up for grabs for active investors willing to wade through the major headlines and an abundance of market negativity, an investment expert has flagged. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
