Time Preferences, Culture, and Household Debt Maturity Choice

Our paper explores the role of time preferences on household debt maturity choice. Wefind that in countries where people are more patient in the long term, planning horizons in householddebt portfolios are significantly longer, as the optimal maturity of loans is considerably higher.The relationship is derived in a theoretical approach and a numerical analysis, and supported by anextensive empirical analysis with 31 countries. Controlling for various economic, institutional, anddemographic variables as well as risk preferences of a country, we show that the long‐term discountfactor δ is a sound predictor for the planning horizon of households’ borrowing decisions. We furtherinvestigate on the foundations of time preferences and explore the role of culture in this context.We show that culture is not only a reasonable predictor for planning horizons, but also a soundpredictor for time preferences as well. The findings complete the picture about the mechanismsbetween culture, time preferences, and planning horizon, and highlight the importance of culture forfinancial decisions.[...]