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Is Financial Fragility a Matter of Illiquidity? An Appraisal for Italian Households

In this paper we investigate household financial fragility and assess the role played by the composition of the household portfolio besides standard determinants of this condition (e.g. income, indebtedness, age, gender, financial literacy). We take the case of Italy, given the very peculiar portfolio composition (high level of housing and low level of indebtedness and portfolio diversification) and provide two main contributions. First, we propose a novel definition of financial fragility. Second, based on this new measure, we use data from the 1998-2010 Bank of Italy Survey on Household Income and Wealth to investigate the determinants of this condition. Our results confirm most usual markers of financial fragility and additionally highlight the role of homeownership, which is not related to the presence of mortgages but it is rather connected to specific socio-demographic features such as age and marital status.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 242.

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Length: 23 pages
Date of creation: 18 Jul 2012
Date of revision: 18 Jul 2012
Handle: RePEc:rtv:ceisrp:242
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  1. Georgarakos, Dimitris & Lojschová, Adriana & Ward-Warmedinger, Melanie, 2010. "Mortgage indebtedness and household financial distress," Working Paper Series 1156, European Central Bank.
  2. Makoto Nakajima & Irina A. Telyukova, 2013. "Reverse mortgage loans: a quantitative analysis," Working Papers 13-27, Federal Reserve Bank of Philadelphia.
  3. Marianna Brunetti & Costanza Torricelli, 2010. "Population age structure and household portfolio choices in Italy," The European Journal of Finance, Taylor & Francis Journals, vol. 16(6), pages 481-502.
  4. Yvonne McCarthy, 2011. "Behavioural Characteristics and Financial Distress," BCL working papers 59, Central Bank of Luxembourg.
  5. Marcelo Fuenzalida & Jaime Ruiz-Tagle, 2009. "Households’ Financial Vulnerability," Working Papers Central Bank of Chile 540, Central Bank of Chile.
  6. repec:bot:quadip:99 is not listed on IDEAS
  7. Olsen, Randall & Dunn, Lucia, 2010. "Housing price declines and household balance sheets," Economics Letters, Elsevier, vol. 107(2), pages 161-164, May.
  8. Umar Faruqui, 2008. "Indebtedness and the Household Financial Health: An Examination of the Canadian Debt Service Ratio Distribution," Working Papers 08-46, Bank of Canada.
  9. Mizuho Kida, 2009. "Financial vulnerability of mortgage-indebted households in New Zealand - evidence from the Household Economic Survey," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 5-12, March.
  10. Jappelli Tullio & Pagano Marco & Di Maggio Marco, 2013. "Households' indebtedness and financial fragility," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 1, pages 23-46, January.
  11. 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.
  12. Holger Kraft & Claus Munk, 2011. "Optimal Housing, Consumption, and Investment Decisions over the Life Cycle," Management Science, INFORMS, vol. 57(6), pages 1025-1041, June.
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