The Able Worry More? Debt Delinquency, Financial Capability, and Financial Stress

Xiao, Jing Jian; Kim, Kyoung Tae

doi:10.1007/s10834-021-09767-3

Cited by 29 publications

(30 citation statements)

References 54 publications

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“…After the addition of financial capability and belief measures, no relationship is found between holding a mortgage in retirement and financial satisfaction (Seay et al, 2015). Financial capability is negatively associated with financial stress (Xiao and Kim, 2021). Among homeowners, having a mortgage is negatively associated with financial satisfaction (Tharp et al, 2020).…”

Section: Proposition 5: Financial Capability Factors Correlate Each O...mentioning

confidence: 96%

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Financial capability: a systematic conceptual review, extension and synthesis

Xiao

Huang

Goyal

et al. 2022

IJBM

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PurposeThis study aims to examine the literature on consumer financial capability. By analyzing the research trends, theories, definitions and themes, the literature on financial capability is synthesized, and agenda for future research is suggested. A framework is presented that portrays the antecedents as well as the outcomes of financial capability and their interlinkages.Design/methodology/approachFollowing a systematic approach, the review is based on 215 articles published during January 2007 and–March 2022, retrieved from Scopus. It presents the definitions and theories of financial capability, publication trends, influential articles, prominent authors, prolific journals and countries publishing on financial capability. Using bibliographic coupling, the intellectual structure of the topic is explored, along with offering a framework through content analysis.FindingsThe bibliographic coupling analysis identifies four major clusters of research themes and capability theory appeared to be the most prominent theory. The synthesis draws upon five conceptual definitions of financial capability. Based on the discussion, in this review, financial capability is defined as an individual ability to apply appropriate financial knowledge, perform desirable financial behaviors and take available financial opportunities for achieving financial well-being. A conceptual framework delineates the synthesized literature and propositions based on this framework and relevant research are proposed. Finally, directions for future research are discussed.Originality/valueThis paper is an attempt to offer a comprehensive synthesis of the scholarship on financial capability and its conceptualization. It further proposes an extensive future research agenda. The study has implications for financial services providers relating to retail bank marketing.

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Section: Proposition 5: Financial Capability Factors Correlate Each O...mentioning

confidence: 96%

“…, 2015). Financial capability is negatively associated with financial stress (Xiao and Kim, 2021). Among homeowners, having a mortgage is negatively associated with financial satisfaction (Tharp et al.…”

Section: Propositions and Synthesesmentioning

confidence: 99%

Financial capability: a systematic conceptual review, extension and synthesis

Xiao

Huang

Goyal

et al. 2022

IJBM

Self Cite

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“…If debts are out of control, consumers will face financial strains such as high debt payment to income ratio, debt payment delinquency and, even worse, bankruptcy. Previous research shows that debt holding may decrease happiness (Tay et al, 2017; and that debt delinquency is associated with perceived financial stress (Xiao and Kim, 2021).…”

Section: Good Debt Bad Debtmentioning

confidence: 99%

“…, 2017; Xiao et al. , 2021) and that debt delinquency is associated with perceived financial stress (Xiao and Kim, 2021).…”

Section: Introductionmentioning

confidence: 99%

Good debt, bad debt: family debt portfolios and financial burdens

Xiao

Yao

2022

IJBM

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PurposeIn recent decades, research on consumer debt and well-being is emerging. However, research on the potential effect of debt portfolios on family financial well-being is limited. The purpose of this study is to fill this research gap by examining the potential effect of debt portfolios on family financial well-being, measured by three indicators of progressive financial burdens. These indicators include debt pressure (debt payment to income ratio >40%), debt delinquency (60+ days late for debt payments) and insolvency (total liability > total asset). Debt portfolios refer to various combinations of mortgage, credit card, vehicle, education and other loans.Design/methodology/approachWith data from the 2019 Survey of Consumer Finances in the USA, multivariate logistic regressions are used to identify specific debt types, consumer backgrounds and financial capability factors that are significantly associated with debt burden indicators. The findings are used to create a table demonstrating warning debt portfolios that may lead to undesirable financial outcomes.FindingsHoldings of different types of debts are associated with different financial burdens. Specifically, holdings of three types of debts (mortgage, vehicle and other debts) tend to increase debt pressure; holdings of two types of debts (education and other debts) tend to increase debt delinquency; and holdings of four types of debts (mortgage, credit card, education and other debts) tend to increase insolvency. These results are used to construct warning debt portfolios that show greater chances of undesirable financial outcomes. Among them, the top warning portfolio for debt pressure is the combined holding of mortgage-vehicle-other debts; for debt delinquency is the holding of education-other debts; and for insolvency is the holding of mortgage-credit card-education-other debts.Research limitations/implicationsThis study is limited by using only cross-sectional survey data to examine associations between debt portfolios and financial burdens. To examine the causality of debt portfolios on financial burdens, appropriate panel data are necessary, which is a direction for future research. In addition, this study used data from only one developed country. In future research, data from more countries, including both developed and developing countries, should be analyzed to verify if similar relationships exist among families in other countries.Practical implicationsResults of this study have implications for practitioners in banking and other financial institutions. The study presents a comprehensive list of debt portfolios in the order from high risk to low risk in terms of financial burdens. Banking and other financial service professionals can use the information to help their clients make informed borrowing decisions, predict their debt burdens and offer early preventions based on their clients' debt portfolios. Marketing strategists can use the information for effective segmentation and promotion purposes.Originality/valueThis study utilizes a new concept, debt portfolios and examines its associations with family financial burdens. Financial burdens include three indicators that are seldom used together in previous research. These indicators conceptually indicate various severity levels of debt burdens. This study also presents a conceptual discussion on the association between debt portfolios and financial burdens and provides a better understanding of consumer debt behavior and its consequences. The warning debt portfolios constructed based on the findings have direct managerial implications for banking and other financial service professionals.

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“…The following variables were selected as psychological variables: whether feeling income stability, whether not have felt hopelessness and not had experienced suicidal thoughts in the recent months, whether financial problems and worries not added to your troubles and not made your life more difficult than usual in the recent months, whether experiencing physical health problems obstructing from going out of the house in the recent months, active response to financial emergencies. Previous research showed that psychological and physical variables are highly relevant given that they may predict personal debt (Bridges & Disney, 2010), financial distress, and fragility (Białowolski et al, 2021;Kealy et al, 2018;Xiao & Kim, 2021), holding risky assets (Xiao & O'Neill, 2020) or more broadly financial capability (Taylor et al, 2011;Xiao et al, 2014).…”

Section: Independent Variablesmentioning

confidence: 99%

What Factors Predict a Positive Change in a Consumer’s Financial Capability over Time? The New Evidence from Poland

Potocki

Białowąs

2022

J Fam Econ Iss

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Despite the significant attention that financial capability has received in the last 20 years, many of its aspects are poorly understood, and the term itself is ambiguously defined. Consequently, different measures of financial capability are used in empirical research creating a tendency to let the data dictate the conceptualization of the financial capability itself. This creates concerns about the reliability of the general findings for countries in Eastern Europe such as Poland. Therefore, the following study is carried out to address these limitations and contribute to the advancement of the literature on financial capability, first, by extending the mainstream of the theoretical work on financial capability with the conceptual proposition framed within Sen’s Capability Approach; second, by proposing the measurement model of financial capability; and third, by using data from the Polish household panel study, Social Diagnosis (SD), to identify factors which predict a positive change in consumer’s financial capability over time. Across these three aims, we found that higher income was a key predictor and substantially improved financial capability in Poland. We also showed the strong and positive link between financial capability and all included psychological variables. Our findings also highlighted the differential impact of demographic variables on financial capability. The findings of this study yield implications for scholars who would like to analyze financial capability in transition or developing countries, but are constrained by limited financial resources to create their own database or have no access to national financial capability studies.

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The Able Worry More? Debt Delinquency, Financial Capability, and Financial Stress

Cited by 29 publications

References 54 publications

Financial capability: a systematic conceptual review, extension and synthesis

Financial capability: a systematic conceptual review, extension and synthesis

Good debt, bad debt: family debt portfolios and financial burdens

What Factors Predict a Positive Change in a Consumer’s Financial Capability over Time? The New Evidence from Poland

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