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Household financial vulnerability: an empirical analysis

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  • Luisa ANDERLONI

    ()

  • Emanuele BACCHIOCCHI

    ()

  • Daniela VANDONE

    ()

Abstract

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

Suggested Citation

  • Luisa ANDERLONI & Emanuele BACCHIOCCHI & Daniela VANDONE, 2011. "Household financial vulnerability: an empirical analysis," Departmental Working Papers 2011-02, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano, revised 03 Nov 2011.
  • Handle: RePEc:mil:wpdepa:2011-02
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    File URL: http://wp.demm.unimi.it/files/wp/2011/DEMM-2011_002wp.pdf
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Bridges, Sarah & Disney, Richard, 2010. "Debt and depression," Journal of Health Economics, Elsevier, vol. 29(3), pages 388-403, May.
    4. Ottaviani, Cristina & Vandone, Daniela, 2011. "Impulsivity and household indebtedness: Evidence from real life," Journal of Economic Psychology, Elsevier, vol. 32(5), pages 754-761.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
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    Citations

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    Cited by:

    1. Monica Răileanu-Szeles, 2015. "Explaining the Dynamics and Drivers of Financial Well-Being in the European Union," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 120(3), pages 701-722, February.
    2. Barbara CAVALLETTI & Corrado LAGAZIO & Daniela VANDONE & Elena LAGOMARSINO, 2014. "Consumer debt and financial fragility in Italy," Departmental Working Papers 2014-08, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    3. Alexander Guschanski & Özlem Onaran, 2016. "The political economy of income distribution: industry level evidence from Austria," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 156, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    4. Köhler, Karsten & Guschanski, Alexander & Stockhammer, Engelbert, 2015. "How does financialisation affect functional income distribution? A theoretical clarification and empirical assessment," Economics Discussion Papers 2015-5, School of Economics, Kingston University London.
    5. Caterina Giannetti & Marianna Madia & Luigi Moretti, 2014. "Job insecurity and financial distress," Applied Financial Economics, Taylor & Francis Journals, vol. 24(4), pages 219-233, February.
    6. Luca Zanin, 2016. "On Italian Households’ Economic Inadequacy Using Quali-Quantitative Measures," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 128(1), pages 59-88, August.
    7. Luisa ANDERLONI & Daniela VANDONE, 2011. "Vulnerabilità e benessere delle famiglie italiane," Departmental Working Papers 2011-40, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    8. Sarah Brown & Pulak Ghosh & Karl Taylor, 2012. "The Existence and Persistence of Household Financial Hardship," Working Papers 2012022, The University of Sheffield, Department of Economics.
    9. Cristina OTTAVIANI & Daniela VANDONE, 2016. "Is Impulsivity a Mediator of the Relationship between Financial Literacy and Debt Decisions?," Departmental Working Papers 2016-06, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    10. Pienaar, Louw & Traub, Lulama, 2015. "Understanding the smallholder farmer in South Africa: Towards a sustainable livelihoods classification," 2015 Conference, August 9-14, 2015, Milan, Italy 212633, International Association of Agricultural Economists.
    11. repec:clr:wugarc:y:2016v:42i:4p:557 is not listed on IDEAS
    12. Barbara Cavalletti & Corrado Lagazio & Daniela Vandone & Elena Lagomarsino, 2012. "The role of financial position on consumer indebted-ness. An empirical analysis in Italy," DEP - series of economic working papers 8/2012, University of Genoa, Research Doctorate in Public Economics.

    More about this item

    Keywords

    Financial Vulnerability Index; Household debt; Consumer Credit; Survey Data; Principal Component Analysis;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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