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The Index of Household Financial Condition, Combining Subjective and Objective Indicators: An Appraisal of Italian Households

Listed author(s):
  • Piotr Bialowolski

    ()

  • Dorota Weziak-Bialowolska

    ()

With data from the Italian Survey of Household Income and Wealth, we present an Index of Household Financial Condition and quantify with it the position of households between 2004 and 2010. The Index of Household Financial Condition is composed of subjective and objective indicators, which enable to capture differently the existing uncertainty concerning the future development of a household’s financial situation. We show with a measurement model based on multi-group confirmatory factor analysis (MGCFA) that the proposed Index is two-dimensional and comprises financial position and financial prudence. Through application of the MGCFA, we show that the interrelations between the indicators had not changed at four measurement occasions (2004–2010), and thus the proposed set comprises a coherent and time-invariant framework for measuring two dimensions of the latent concept: financial condition. Established measurement invariance in the MGCFA framework allows an assessment of trend in financial position and financial prudence of Italian households. We show that the financial position of Italian households improved in the period 2004–2006 and later declined. Improvement of the financial prudence was observed, however, till 2008. Finally, we incorporate a set of socioeconomic features of Italian households into a structural equation model. With the provided set of indicators, we find positive relation between age and both financial position and prudence, but also we show the positive impact of white-collar jobs on scores in each of the dimensions of the financial condition. Copyright European Union 2014

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File URL: http://hdl.handle.net/10.1007/s11205-013-0401-0
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Article provided by Springer in its journal Social Indicators Research.

Volume (Year): 118 (2014)
Issue (Month): 1 (August)
Pages: 365-385

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Handle: RePEc:spr:soinre:v:118:y:2014:i:1:p:365-385
DOI: 10.1007/s11205-013-0401-0
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/journal/11135

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  1. Yvonne McCarthy, 2011. "Behavioural Characteristics and Financial Distress," BCL working papers 59, Central Bank of Luxembourg.
  2. Jappelli Tullio & Marino Immacolata & Padula Mario, 2014. "Households' Saving and Debt in Italy," Politica economica, Società editrice il Mulino, issue 2-3, pages 175-202.
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  16. Jappelli Tullio & Pagano Marco & Di Maggio Marco, 2013. "Households' indebtedness and financial fragility," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 1, pages 23-46, January.
  17. Deborah A. Cobb-Clark & David C. Ribar, 2009. "Financial Stress, Family Conflict, and Youths’ Successful Transition to Adult Roles," CEPR Discussion Papers 627, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  18. Sarah Brown & Karl Taylor, 2008. "Household debt and financial assets: evidence from Germany, Great Britain and the USA," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 615-643.
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