IDEAS home Printed from https://ideas.repec.org/p/mhe/chemon/paper_1782091543313_228.html

Disaster Exposure and Household Financial Disruption

Author

Listed:
  • David W. Johnston
  • Sundar Ponnusamy

Abstract

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.

Suggested Citation

  • David W. Johnston & Sundar Ponnusamy, 2026. "Disaster Exposure and Household Financial Disruption," Papers 2026-05, Centre for Health Economics, Monash University.
    • Handle: RePEc:mhe:chemon:paper_1782091543313_228
    as

    Download full text from publisher

    File URL: https://papertool-v2-storage.s3.amazonaws.com/RePEc/mhe/chemon/paper_1782091543313_228.pdf
    File Function: Full-text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Susana Ferreira, 2024. "Extreme Weather Events and Climate Change: Economic Impacts and Adaptation Policies," Annual Review of Resource Economics, Annual Reviews, vol. 16(1), pages 207-231, October.
    2. Maria I. Marshall, 2025. "Small Business Disaster Recovery in the United States," Annual Review of Resource Economics, Annual Reviews, vol. 17(1), pages 361-380, October.
    3. Timothy G. Conley & Christopher R. Taber, 2011. "Inference with "Difference in Differences" with a Small Number of Policy Changes," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 113-125, February.
    4. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
    5. Johar, Meliyanni & Johnston, David W. & Shields, Michael A. & Siminski, Peter & Stavrunova, Olena, 2022. "The economic impacts of direct natural disaster exposure," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 26-39.
    6. Goodman-Bacon, Andrew, 2021. "Difference-in-differences with variation in treatment timing," Journal of Econometrics, Elsevier, vol. 225(2), pages 254-277.
    7. Morse, Adair, 2011. "Payday lenders: Heroes or villains?," Journal of Financial Economics, Elsevier, vol. 102(1), pages 28-44, October.
    8. Justin Gallagher & Daniel Hartley, 2017. "Household Finance after a Natural Disaster: The Case of Hurricane Katrina," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 199-228, August.
    9. Collier, Benjamin L. & Powell, Lawrence S. & Ragin, Marc A. & You, Xuesong, 2025. "Financing Negative Shocks: Evidence from Hurricane Harvey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 60(3), pages 1342-1372, May.
    10. Laura Leete & Neil Bania, 2010. "The effect of income shocks on food insufficiency," Review of Economics of the Household, Springer, vol. 8(4), pages 505-526, December.
    11. Hu, Zhongchen, 2022. "Social interactions and households’ flood insurance decisions," Journal of Financial Economics, Elsevier, vol. 144(2), pages 414-432.
    12. Xuesong You & Carolyn Kousky, 2024. "Improving household and community disaster recovery: Evidence on the role of insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 91(2), pages 299-338, June.
    13. Benjamin L. Collier & Daniel A. Hartley & Benjamin J. Keys & Jing Xian Ng, 2024. "Credit When You Need It," NBER Working Papers 32845, National Bureau of Economic Research, Inc.
    14. Carlos Dobkin & Amy Finkelstein & Raymond Kluender & Matthew J. Notowidigdo, 2018. "The Economic Consequences of Hospital Admissions," American Economic Review, American Economic Association, vol. 108(2), pages 308-352, February.
    15. del Valle, Alejandro & Scharlemann, Therese & Shore, Stephen, 2024. "Household Financial Decision-Making After Natural Disasters: Evidence from Hurricane Harvey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 59(5), pages 2459-2485, August.
    16. Agarwal, Sumit & Ghosh, Pulak & Zheng, Huanhuan, 2024. "Consumption response to a natural disaster: Evidence of price and income shocks from Chennai flood," Energy Economics, Elsevier, vol. 131(C).
    17. Benjamin J. Keys & Philip Mulder, 2024. "Property Insurance and Disaster Risk: New Evidence from Mortgage Escrow Data," NBER Working Papers 32579, National Bureau of Economic Research, Inc.
    18. Cardella, Eric & Keeler, Zachary & Ewing, Bradley T. & Liang, Daan, 2025. "Small business recovery and resilience in the aftermath of hurricane Harvey," Journal of Economic Behavior & Organization, Elsevier, vol. 234(C).
    19. Fu, Zhenqi & Tao, Yunqing, 2022. "Land disasters and farmers’ private credit," Finance Research Letters, Elsevier, vol. 47(PB).
    20. Billings, Stephen B. & Gallagher, Emily A. & Ricketts, Lowell, 2022. "Let the rich be flooded: The distribution of financial aid and distress after hurricane harvey," Journal of Financial Economics, Elsevier, vol. 146(2), pages 797-819.
    21. Bharath, Sreedhar T. & Cho, DuckKi, 2023. "Do Natural Disaster Experiences Limit Stock Market Participation?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 58(1), pages 29-70, February.
    22. Cortés, Kristle Romero & Strahan, Philip E., 2017. "Tracing out capital flows: How financially integrated banks respond to natural disasters," Journal of Financial Economics, Elsevier, vol. 125(1), pages 182-199.
    23. Ho, Anson T.Y. & Huynh, Kim P. & Jacho-Chávez, David T. & Vallée, Geneviève, 2023. "We didn’t start the fire: Effects of a natural disaster on consumers’ financial distress," Journal of Environmental Economics and Management, Elsevier, vol. 119(C).
    24. Tatyana Deryugina & Laura Kawano & Steven Levitt, 2018. "The Economic Impact of Hurricane Katrina on Its Victims: Evidence from Individual Tax Returns," American Economic Journal: Applied Economics, American Economic Association, vol. 10(2), pages 202-233, April.
    25. Ulrich Schüwer & Claudia Lambert & Felix Noth, 2019. "How Do Banks React to Catastrophic Events? Evidence from Hurricane Katrina," Review of Finance, European Finance Association, vol. 23(1), pages 75-116.
    26. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Benjamin L. Collier & Daniel A. Hartley & Benjamin J. Keys & Jing Xian Ng, 2024. "Credit When You Need It," NBER Working Papers 32845, National Bureau of Economic Research, Inc.
    2. Kakuho Furukawa & Hibiki Ichiue & Noriyuki Shiraki, 2025. "How Does Climate Change Interact with the Financial System?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 43, pages 61-94, November.
    3. Bilal Islah & Ahmed Zoulati, 2025. "Keeping in Place After the Storm-Emergency Assistance and Evictions," Papers 2505.14548, arXiv.org, revised Nov 2025.
    4. Pedro Gete & Athena Tsouderou & Susan M. Wachter, 2024. "Climate risk in mortgage markets: Evidence from Hurricanes Harvey and Irma," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 52(3), pages 660-686, May.
    5. Clò, Stefano & David, Francesco & Segoni, Samuele, 2024. "The impact of hydrogeological events on firms: Evidence from Italy," Journal of Environmental Economics and Management, Elsevier, vol. 124(C).
    6. Benjamin Collier & Cameron Ellis, 2024. "A Demand Curve for Disaster Recovery Loans," Econometrica, Econometric Society, vol. 92(3), pages 713-748, May.
    7. Jose J. Canals-Cerda & Raluca Roman, 2021. "Climate Change and Consumer Finance: A Very Brief Literature Review," Consumer Finance Institute discussion papers 21-04, Federal Reserve Bank of Philadelphia.
    8. Jess Cornaggia & Kimberly J. Cornaggia & Han Xia, 2026. "Natural Disasters, Financial Shocks, and Human Capital," Management Science, INFORMS, vol. 72(5), pages 3826-3846, May.
    9. Joel Huesler, 2024. "Impact of tropical storms on the banking sector in the British Colonial Caribbean," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 18(3), pages 653-690, September.
    10. Walter Distaso & Wolfgang Lefever & Angelo Luisi & Francesco Roccazzella, 2025. "The Impact of Wildfires on Loss Given Default: Evidence from Defaulted Consumer Credits," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 25/1129, Ghent University, Faculty of Economics and Business Administration.
    11. Siddhartha Biswas & Mallick Hossain & David Zink, 2023. "California Wildfires, Property Damage, and Mortgage Repayment," Working Papers 23-05, Federal Reserve Bank of Philadelphia.
    12. Benjamin L. Collier & Cameron M. Ellis & Benjamin J. Keys, 2025. "The Cost of Consumer Collateral: Evidence From Bunching," Econometrica, Econometric Society, vol. 93(3), pages 779-819, May.
    13. Jerch, Rhiannon & Kahn, Matthew E. & Lin, Gary C., 2023. "Local public finance dynamics and hurricane shocks," Journal of Urban Economics, Elsevier, vol. 134(C).
    14. Kakuho Furukawa & Hibiki Ichiue & Noriyuki Shiraki, 2020. "How Does Climate Change Interact with the Financial System? A Survey," Bank of Japan Working Paper Series 20-E-8, Bank of Japan.
    15. Settle, Antonia & Zilio, Federico & Mistica, Meladel & Nattala, Usha, 2025. "Climate-related disaster risk in Australia: Are risks higher for disadvantaged households?," Ecological Economics, Elsevier, vol. 236(C).
    16. repec:fip:fedpwp:96170 is not listed on IDEAS
    17. Stefano Clò & Francesco David & Samuele Segoni, 2024. "The impact of hydrogeological events on firms: evidence from Italy," Temi di discussione (Economic working papers) 1451, Bank of Italy, Economic Research and International Relations Area.
    18. Huang, Wei & Luo, Mi & Ta, Yuqi & Wang, Boxian, 2024. "Land expropriation, household behaviors, and health outcomes: Evidence from China," Journal of Development Economics, Elsevier, vol. 171(C).
    19. Liao, Yanjun (Penny) & Mulder, Philip, 2021. "What’s at Stake? Understanding the Role of Home Equity in Flood Insurance Demand," RFF Working Paper Series 21-25, Resources for the Future.
    20. Graff Zivin, Joshua & Liao, Yanjun & Panassié, Yann, 2023. "How hurricanes sweep up housing markets: Evidence from Florida," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    21. Garbarino, Nicola & Guin, Benjamin, 2021. "High water, no marks? Biased lending after extreme weather," Journal of Financial Stability, Elsevier, vol. 54(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G52 - Financial Economics - - Household Finance - - - Insurance
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mhe:chemon:paper_1782091543313_228. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Johannes Kunz (email available below). General contact details of provider: https://edirc.repec.org/data/dxmonau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.