Originating and managing debt are cognitively demanding tasks that have become more challenging in the past few decades with the increasing variety and complexity of available financial products. We examine how cognitive ability is related to debt burdens among older adults and whether this relationship has changed over time with the increasingly complex financial landscape. We find that cognitive ability is an important predictor of debt burdens in older age and that individuals with higher cognitive ability have taken on higher debt levels relative to their counterparts in more complex financial environments, leading to increased financial fragility among relatively more sophisticated consumers. Our findings are broadly inconsistent with financial intermediaries systematically pushing increasingly complicated financial products onto unsophisticated borrowers.

A randomized encouragement design yields null average effects of a credit builder loan (CBL) on consumer credit scores. But machine learning algorithms indicate the nulls are due to stark, offsetting treatment effects depending on baseline installment credit activity. Delinquency on preexisting loan obligations drives the negative effects, suggesting that adding a CBL overextends some consumers and generates negative externalities on other lenders. More favorably for the market, CBL take-up generates positive selection on score improvements. Simple changes to CBL practice, particularly to provider screening and credit bureau reporting, could ameliorate the negative effects for consumers and the market.