The Persistence of Financial Distress
38 Pages Posted: 4 Dec 2017
Date Written: November 27, 2017
Using recently available proprietary panel data, we show that while many (35%) US consumers experience financial distress at some point in the life cycle, most of the events of financial distress are primarily concentrated in a much smaller proportion of consumers in persistent trouble. Roughly 10% of consumers are distressed for more than a quarter of the life cycle, and less than 10% of borrowers account for half of all distress events. These facts can be largely accounted for in a straightforward extension of a workhorse model of defaultable debt that accommodates a simple form of heterogeneity in time preference but not otherwise.
Keywords: default, financial distress, consumer credit, credit card debt
JEL Classification: D60, E21, E44
Suggested Citation: Suggested Citation