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The impact of unsecured debt on financial distress among British households

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  • Ana Del-Rí­o
  • Garry Young

Abstract

This paper uses evidence from the British Household Panel Survey (BHPS) to examine how attitudes towards unsecured debt are related to household finances and other characteristics. An ordered-logit model is estimated for 1995 and 2000 using a self-reported indicator of financial distress as the dependent variable. This analysis suggests that the main factors causing debt problems are the unsecured debt-income ratio, the level of mortgage income gearing, the level of financial wealth of households, their health, ethnicity and marital status. While the proportion of households reporting debt problems did not change between 1995 and 2000, there were important shifts among different groups. In particular, more households in the youngest age group reported debt repayments were a heavy burden in 2000, while the opposite applies to the oldest age group where a smaller proportion of households than in 1995 reported debt was a heavy burden. These changes can largely be accounted for by the changing economic circumstances of these groups rather than an unrelated shift in attitudes. In particular, the increase in indebtedness of the young was the main factor accounting for their greater tendency to report debt problems.

Suggested Citation

  • Ana Del-Rí­o & Garry Young, 2005. "The impact of unsecured debt on financial distress among British households," Bank of England working papers 262, Bank of England.
  • Handle: RePEc:boe:boeewp:262
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    File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2005/WP262.pdf
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    Cited by:

    1. Philip Du Caju & François Rycx & Ilan Tojerow, 2015. "Unemployment Risk and Over-indebtedness A Micro-econometric Perspective," Working Papers CEB 15-046, ULB -- Universite Libre de Bruxelles.
    2. Jessica Schicks, 2013. "The Sacrifices of Micro-Borrowers in Ghana -- A Customer-Protection Perspective on Measuring Over-Indebtedness," Journal of Development Studies, Taylor & Francis Journals, vol. 49(9), pages 1238-1255, September.
    3. Matthias Keese, 2009. "Triggers and Determinants of Severe Household Indebtedness in Germany," SOEPpapers on Multidisciplinary Panel Data Research 239, DIW Berlin, The German Socio-Economic Panel (SOEP).
    4. Herrala, Risto & Kauko, Karlo, 2007. "Household loan loss risk in Finland : estimations and simulations with micro data," Research Discussion Papers 5/2007, Bank of Finland.
    5. Khandker, Shahidur R. & Faruqee, Rashid & Samad, Hussain A., 2013. "Are microcredit borrowers in Bangladesh over-indebted ?," Policy Research Working Paper Series 6574, The World Bank.
    6. Jakubik, Petr, 2011. "Households response to economic crisis," BOFIT Discussion Papers 7/2011, Bank of Finland, Institute for Economies in Transition.
    7. Georgarakos, Dimitris & Lojschova, Adriana & Ward-Warmedinger, Melanie E., 2009. "Mortgage Indebtedness and Household Financial Distress," IZA Discussion Papers 4631, Institute of Labor Economics (IZA).
    8. Giordana, Gastón & Ziegelmeyer, Michael, 2020. "Stress testing household balance sheets in Luxembourg," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 115-138.
    9. Luis J. Álvarez & Emmanuel Dhyne & Marco Hoeberichts & Claudia Kwapil & Hervé Le Bihan & Patrick Lünnemann & Fernando Martins & Roberto Sabbatini & Harald Stahl & Philip Vermeulen & Jouko Vilmunen, 2006. "Sticky Prices in the Euro Area: A Summary of New Micro-Evidence," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 575-584, 04-05.
    10. Matthias Keese, 2010. "Who Feels Constrained by High Debt Burdens? – Subjective vs. Objective Measures of Household Indebtedness," Ruhr Economic Papers 0169, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    11. Matthias Keese, 2009. "Triggers and Determinants of Severe Household Indebtedness in Germany," Ruhr Economic Papers 0150, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    12. Meral Karasulu, 2008. "Stress Testing Household Debt in Korea," IMF Working Papers 2008/255, International Monetary Fund.
    13. Schicks, Jessica, 2014. "Over-Indebtedness in Microfinance – An Empirical Analysis of Related Factors on the Borrower Level," World Development, Elsevier, vol. 54(C), pages 301-324.
    14. Jessica Schicks, 2010. "Microfinance Over-Indebtedness: Understanding its drivers and challenging the common myths," Working Papers CEB 10-048, ULB -- Universite Libre de Bruxelles.
    15. Keese, Matthias, 2010. "Who Feels Constrained by High Debt Burdens? – Subjective vs. Objective Measures of Household Indebtedness," Ruhr Economic Papers 169, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    16. Luisa ANDERLONI & Daniela VANDONE, 2008. "Households over-indebtedness in the economic literature," Departmental Working Papers 2008-46, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    17. repec:zbw:rwirep:0169 is not listed on IDEAS
    18. Walter Cuba, 2020. "Does Leverage Predict Delinquency in Consumer Lending? Evidence from Peru," IHEID Working Papers 05-2020, Economics Section, The Graduate Institute of International Studies.
    19. Isabelle Guérin & Christophe Nordman & Elena Reboul, 2019. "The gender of debt and the financialisation of development. Insights from rural southern India," Working Papers CEB 19-016, ULB -- Universite Libre de Bruxelles.
    20. Ana del Río & Garry Young, 2005. "The determinants of unsecured borrowing: evidence from the British household panel survey," Working Papers 0511, Banco de España;Working Papers Homepage.
    21. Adela Luque, 2005. "Skill mix and technology in Spain: evidence from firm level data," Working Papers 0513, Banco de España;Working Papers Homepage.
    22. Petr Jakubík, 2011. "Household Balance Sheets and Economic Crisis," Working Papers IES 2011/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2011.
    23. repec:zbw:rwirep:0150 is not listed on IDEAS

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    More about this item

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • 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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