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Financially Fragile Households: Evidence and Implications

Author

Listed:
  • Annamaria Lusardi

    (George Washington University)

  • Daniel Schneider

    (Princeton University)

  • Peter Tufano

    (University of Oxford)

Abstract

This paper examines households’ financial fragility by looking at their capacity to come up with $2,000 in 30 days. Using data from the 2009 TNS Global Economic Crisis survey, we document widespread financial weakness in the United States: Almost half of Americans report that they are incapable of coming-up with the funds necessary to deal with an ordinary financial shock. While financial fragility is more severe among those with low educational attainment and no financial education, families with children, those who suffered large wealth losses, and those who are unemployed, a sizable fraction of seemingly “middle class” Americans judge themselves to be financially fragile. We examine the coping methods people use to deal with shocks. While savings is used most often, relying on family and friends, using formal and alternative credit, increasing work hours, and selling items are also used frequently to deal with emergencies, especially for some subgroups. Household finance researchers must look beyond precautionary saving to understand how families cope with risk. We also find evidence of a pecking order of coping methods in which savings appears to be first in the ordering. Finally, the paper compares the levels of financial fragility and methods of coping among eight industrialized countries. While there are differences in coping ability across countries, there is general evidence of a consistent ordering of coping methods.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Annamaria Lusardi & Daniel Schneider & Peter Tufano, 2011. "Financially Fragile Households: Evidence and Implications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 83-150.
  • Handle: RePEc:bin:bpeajo:v:42:y:2011:i:2011-01:p:83-150
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    financial fragility; savings; coping;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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