Financially Fragile Households: Evidence and Implications

Lusardi, Annamaria; Schneider, Daniel; Tufano, Peter

doi:10.3386/w17072

Cited by 248 publications

(173 citation statements)

References 60 publications

(25 reference statements)

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“…Accordingly, 25% of Americans report they cannot come up with $2000 in 30 days, while an additional 19% would only be able to after selling or pawning possessions or taking payday loans (Lusardi, Schneider, and Tufano 2011). These findings are alarming, especially given the unknown timing of many expenditures related to adverse events (e.g.…”

Section: Introductionmentioning

confidence: 70%

Psychological determinants of financial buffer saving: the influence of financial risk tolerance and regulatory focus

Magendans

Gutteling

Zebel

2016

Journal of Risk Research

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With governments redistributing more responsibilities unto citizens, individuals have an increasing need for financial resources acting as a buffer against life's setbacks and unexpected expenditures. The purpose of this study was to examine psychological determinants of saving for a financial buffer, for which a theoretical model was formulated based on the theory of planned behaviour with three new, domain-specific psychological constructs: financial risk tolerance, regulatory focus and perceived saving barriers. Data were collected with an online questionnaire that utilised convenience and snowball sampling to target both students and working individuals (N = 272). Regression analyses offered support for the proposed model, showing that participants' financial risk tolerance (i.e. an individual's attitude towards financial risk taking) was significantly associated with their subjective financial knowledge and regulatory focus. Furthermore, perceived financial self-efficacy and financial risk tolerance both predicted participants' intention to save for a financial buffer. In turn, perceived financial selfefficacy and saving intention predicted self-reported saving behaviour. Importantly, perceived saving barriers mediated the relationship between saving intention and self-reported saving behaviour. In line with the proposed model, results also showed that a specific attitude-based construct (financial risk tolerance) is a considerably better predictor of saving intention than general measures of attitude towards saving. This study is also the first to demonstrate that regulatory focus influences financial risk tolerance. Implications of these findings for stimulating saving behaviour are discussed.

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Section: Introductionmentioning

confidence: 70%

Psychological determinants of financial buffer saving: the influence of financial risk tolerance and regulatory focus

Magendans

Gutteling

Zebel

2016

Journal of Risk Research

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“…Hence, the steady-state value for the marginal cost is obtained as mc = θ 1 θ . The probability of not changing prices, ω, is set to 0.75, meaning that prices change every four quarters on average, whereas we take an intermediate value, ς = 0.4, for inflation 22 A share of about 36% of constrained consumers in the US economy is consistent with some of the most recent estimations (Bartolomeo et al, 2011or Kiley, 2010 but lower than the 50% seminal estimate share by Campbell and Mankiw (1990), the proportion of US households that according to Lusardi et al (2011) can be considered financially fragile (also 50%), and the 55% of the consumers that Misra and Surico (2011) show do not behave in a Ricardian manner.…”

Section: Calibrationmentioning

confidence: 99%

Household Leverage and Fiscal Multipliers

2012

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We study the size of government spending multipliers in a general equilibrium model with search and matching frictions in which we allow for different levels of household indebtedness. The main results of the paper are: (a) the presence of impatient households and private debt helps generate government spending multipliers greater than 1; (b) as financial conditions worsen and impatient consumers find it more difficult to borrow (i.e. in a credit crunch), the size of the government spending multiplier falls; (c) conversely, employment, vacancies and unemployment multipliers are larger when access to credit becomes more difficult; and (d) the model explains the observed pattern of responses of labour market variables, housing prices and private debt to a fiscal shock reasonably well. On these grounds it outperforms the standard model with RoT (Hand-to-Mouth) consumers whose predictions for the labour market are at odds with the data. As a side point, our framework makes it clear why RoT households' lack of asset holdings is responsible for the extremely high fiscal multipliers that they produce.

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“…National Survey data show that pawn shop users and payday borrowers accounted for 8 percent and 5 percent of total respondents, respectively (FINRA Foundation, 2009 , 1997). Third, resources and economic circumstances can be a factor, particularly in the midst of the recent financial crisis, during which many families experienced shocks not just to income but also to wealth (Lusardi, Schneider, and Tufano, 2011). While all of these explanations are potentially important and have merit,…”

Section: Descriptive Analysismentioning

confidence: 99%

Financial Literacy and High-Cost Borrowing in the United States

Lusardi

Scheresberg

2013

Self Cite

118

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In this paper, we examine high-cost methods of borrowing in the United States, such as payday loans, pawn shops, auto title loans, refund anticipation loans, and rent-to-own shops, and offer a portrait of borrowers who use these methods. Considering a representative sample of more than 26,000 respondents, we find that about one in four Americans has used one of these methods in the past five years. Moreover, many young adults engage in high-cost borrowing: 34 percent of young respondents (aged 18-34) and 43 percent of young respondents with a high school degree have used one of these methods. Using well-tested questions to measure financial literacy, we document that most high-cost borrowers display very low levels of financial literacy, i.e., they lack numeracy and do not possess knowledge of basic financial concepts. Most importantly, we find that those who are more financially literate are much less likely to have engaged in high-cost borrowing. Our empirical work shows that it is not only the shocks inflicted by the financial crisis or the structure of the financial system but that the level of financial literacy also plays a role in explaining why so many individuals have made use of high-cost borrowing methods.

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Financially Fragile Households: Evidence and Implications

Cited by 248 publications

References 60 publications

Psychological determinants of financial buffer saving: the influence of financial risk tolerance and regulatory focus

Psychological determinants of financial buffer saving: the influence of financial risk tolerance and regulatory focus

Household Leverage and Fiscal Multipliers

Financial Literacy and High-Cost Borrowing in the United States

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