Inequalities and Use of Financial Products in Comparison with the Concept of the Life Cycle of a Household

This chapter compares the borrowing and saving trends of the poorest European households in the wider perspective of financial decisions taken by a household over its lifetime. It uses the classical permanent income and life cycle hypotheses but admits other reasons and also the irrationality of decisions taken by households. It takes into account the increasing inequality of European households and growing numbers of the poorest. It takes into account also the impact of recently proliferating financial products, as short-term loans, as a substitute for income in the financial planning of households. Using microeconomic data, it concludes that the behaviour of the poorest households significantly departs from classical life cycle hypotheses. Mortgage borrowing is less frequent and seems to be for some households replaced by non-mortgage borrowing for current purposes. The poorest households are more frequently refused credit and suffer from credit repayment burdens. Financial stress and probably also behavioural biases make the poorest households have less financial resources for retirement. Among underpinnings may be indicated their poverty, but also lower financial awareness, less appropriate borrowing decisions and being subject to deselection from financial offers dedicated to better customers, and aggressive selling of short-term and high-cost loans.