Working Paper: NBER ID: w17072
Authors: Annamaria Lusardi; Daniel J. Schneider; Peter Tufano
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: Approximately one quarter of Americans report that they would certainly not be able to come up with such funds, and an additional 19% would do so by relying at least in part on pawning or selling possessions or taking payday loans. If we consider the respondents who report being certain or probably not able to cope with an ordinary financial shock of this size, we find that nearly half of Americans are financially fragile. 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 also judge themselves to be financially fragile. We examine the coping methods people use to deal with shocks. While savings is 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 savings 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
Keywords: financial fragility; households; coping mechanisms; savings; credit
JEL Codes: D14; D91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial fragility (G51) | socioeconomic status (P36) |
| education (I29) | financial fragility (G51) |
| wealth loss (G33) | financial fragility (G51) |
| unemployment (J64) | financial fragility (G51) |
| financial literacy (G53) | coping strategies (E71) |
| savings (D14) | coping strategies (E71) |
| demographic factors (J11) | financial fragility (G51) |