Disaster Exposure and Household Financial Disruption

How do households finance a costly, sudden shock? We study this question using natural disasters as a source of exogenous variation. Exploiting 15 waves of Australian longitudinal data and individual fixed-effects models, we estimate the effects of direct disaster exposure on household expenditure, income, assets, liabilities, and financial hardship, including coping margins that are typically unobserved in administrative data. Disaster exposure increases expenditure, driven by repair-related spending, while income and assets remain largely unchanged. The main adjustment occurs through significant increases in personal debt and informal financing. For many households, these responses are insufficient to avoid material deprivation, with increases in the likelihood of going without meals, missing utility payments, and being unable to heat the home. These effects are larger among households without insurance coverage and are concentrated in the year of the shock.