Financially Fragile Households: Evidence and Implications

49 Pages Posted: 19 Apr 2011

See all articles by Annamaria Lusardi

Annamaria Lusardi

George Washington University - Department of Accountancy; National Bureau of Economic Research (NBER)

Daniel Schneider

Princeton University

Peter Tufano

University of Oxford - Said Business School; National Bureau of Economic Research (NBER); University of Oxford - Said Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 7, 2011

Abstract

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.

Suggested Citation

Lusardi, Annamaria and Schneider, Daniel and Tufano, Peter, Financially Fragile Households: Evidence and Implications (March 7, 2011). Netspar Discussion Paper No. 03/2011-013. Available at SSRN: https://ssrn.com/abstract=1809708 or http://dx.doi.org/10.2139/ssrn.1809708

Annamaria Lusardi (Contact Author)

George Washington University - Department of Accountancy ( email )

George Washington University School of Business
Washington, DC 20052
United States

HOME PAGE: http://business.gwu.edu/profiles/annamaria-lusardi/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Daniel Schneider

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

Peter Tufano

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0) 1865 288551 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0) 1865 288551 (Phone)

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