Financially Fragile Households: Evidence and Implications
The George Washington University School of Business; National Bureau of Economic Research (NBER)
University of Oxford - Said Business School; National Bureau of Economic Research (NBER)
March 7, 2011
Netspar Discussion Paper No. 03/2011-013
This paper examines households’ financial fragility by looking at their capacity to come up with $2,000 in 30 days. Using data from the 2009 TNS Global Economic Crisis survey, we document widespread financial weakness in the United States: Almost half of Americans report that they are incapable of coming-up with the funds necessary to deal with an ordinary financial shock. While financial fragility is more severe among those with low educational attainment and no financial education, families with children, those who suffered large wealth losses, and those who are unemployed, a sizable fraction of seemingly “middle class” Americans judge themselves to be financially fragile. We examine the coping methods people use to deal with shocks. While savings s used most often, relying on family and friends, using formal and alternative credit, increasing work hours, and selling items are also used frequently to deal with emergencies, especially for some subgroups. Household finance researchers must look beyond precautionary saving to understand how families cope with risk. We also find evidence of a pecking order of coping methods in which savings appears to be first in the ordering. Finally, the paper compares the levels of financial fragility and methods of coping among eight industrialized countries. While there are differences in coping ability across countries, there is general evidence of a consistent ordering of coping methods.
Number of Pages in PDF File: 49working papers series
Date posted: April 19, 2011
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 0.422 seconds