Household Indebtedness Indicators - a Critical Review

Increased levels of household indebtedness in the economic theory and practice are seen as a serious problem for macro-financial stability. The high growth rates of household financial liabilities serve as a warning signal of an impending economic crisis and pose a potential risk to financial stability. However, there is still a lack of consensus among experts and the academic community on the adoption and implementation of a generally accepted system of indicators for measuring the level of indebtedness. The lack of aggregated standard for indebtedness indicators makes it difficult to conduct stress tests on both the ability of households to absorb losses and the resilience of the financial system to economic shocks. The present study attempts to systematize the indicators of household indebtedness and to perform a critical analysis of their strengths and weaknesses. The objects of analysis are the financial liabilities of households to banks and other financial institutions. Budget commitments and other utility payments remain out of the focus of research. The findings of the study could be useful for the practice of experts in family finance management, policymakers, regulators and supervisors in activities to improve credit risk management in financial institutions and financial management at the macro and micro levels.