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Household financial vulnerability: an empirical analysis

Listed author(s):
  • Luisa ANDERLONI

    ()

  • Emanuele BACCHIOCCHI

    ()

  • Daniela VANDONE

    ()

Using survey data, we investigate household financial distress. Specifically, we propose an indicator of financial vulnerability to jointly analyse different features of household financial distress, analysing its socio-demographic and economic determinants. A total number of 3,102 Italian households make up the sample. The empirical analysis highlights that for the median level of the financial vulnerability index households already exhibit some important symptoms of financial vulnerability, such as problems in getting to the end of the month or an inability to face unexpected expenses. As regards the determinants of the financial vulnerability index, three findings need to be pointed out. First, the level of debt servicing is positively related to financial vulnerability and the effect is stronger for households holding unsecured debt, i. e. consumer credit. Second, financial vulnerability also increases for impulsive individuals, who may adopt impatient, short-sighted behaviour patterns which make it difficult for them to be fully aware of the consequences of their financial and spending decisions. Third, a higher level of education helps to reduce financial

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Paper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2011-02.

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Date of creation: 29 Jan 2011
Date of revision: 03 Nov 2011
Handle: RePEc:mil:wpdepa:2011-02
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  1. Sandra F. Braunstein & Carolyn Welch, 2002. "Financial literacy: an overview of practice, research, and policy," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 445-457.
  2. Bridges, Sarah & Disney, Richard, 2010. "Debt and depression," Journal of Health Economics, Elsevier, vol. 29(3), pages 388-403, May.
  3. Sarah Bridges & Richard Disney, 2004. "Use of credit and arrears on debt among low-income families in the United Kingdom," Fiscal Studies, Institute for Fiscal Studies, vol. 25(1), pages 1-25, March.
  4. Sarah Brown & Karl Taylor, 2008. "Household debt and financial assets: evidence from Germany, Great Britain and the USA," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 615-643.
  5. Pier Ferrari & Silvia Salini, 2011. "Complementary Use of Rasch Models and Nonlinear Principal Components Analysis in the Assessment of the Opinion of Europeans About Utilities," Journal of Classification, Springer;The Classification Society, vol. 28(1), pages 53-69, April.
  6. Luisa ANDERLONI & Daniela VANDONE, 2010. "Risk of over-indebtedness and behavioural factors," Departmental Working Papers 2010-25, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  7. Ana del Rio & Garry Young, 2008. "The impact of unsecured debt on financial pressure among British households," Applied Financial Economics, Taylor & Francis Journals, vol. 18(15), pages 1209-1220.
  8. Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, vol. 92(3), pages 706-718, June.
  9. Ottaviani, Cristina & Vandone, Daniela, 2011. "Impulsivity and household indebtedness: Evidence from real life," Journal of Economic Psychology, Elsevier, vol. 32(5), pages 754-761.
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