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Consumer debt in Luxembourg and the euro area: Evidence from the Household Finance and Consumption Survey

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  • Giuseppe Pulina

Abstract

On average, consumer debt per household is twice as high in Luxembourg as in the euro area. Among lower-income households, consumer debt is even three times higher in Luxembourg. However, since incomes are also higher in Luxembourg, the ratio of consumer debt to gross income is comparable in Luxembourg and the euro area. This paper uses household survey data to compare the prevalence of consumer debt in Luxembourg and the euro area. It focuses on the two major components of consumer debt, installment loans and credit card debt, linking the probability of contracting these types of debt to individual household socio-economic characteristics. In the euro area, households with mortgage debt are more likely to take out consumer debt, highlighting the need to better understand this behavior and its potential link to financial vulnerability. Credit cards, instead, are more common in Luxembourg than in the euro area, but the share of households holding credit card debt is similar. Many euro area households that hold credit card debt also hold liquid assets, often in amounts sufficient to repay this debt. Credit constraints and differences in individual risk preferences may help to explain this otherwise puzzling behavior.

Suggested Citation

  • Giuseppe Pulina, 2023. "Consumer debt in Luxembourg and the euro area: Evidence from the Household Finance and Consumption Survey," BCL working papers 175, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp175
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    More about this item

    Keywords

    household finance; consumer debt; installment loans; credit cards.;
    All these keywords.

    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • 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
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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