Financially Fragile Household

A Financially Fragile Household is a household without the capacity to react to a regular financial shock.

• See: Financially Secure Household.

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References

2016

• http://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/
  • QUOTE: Financial impotence goes by other names: financial fragility, financial insecurity, financial distress. But whatever you call it, the evidence strongly indicates that either a sizable minority or a slim majority of Americans are on thin ice financially. How thin? A 2014 Bankrate survey, echoing the Fed’s data, found that only 38 percent of Americans would cover a $1,000 emergency-room visit or $500 car repair with money they’d saved.

2012

• (Shah et al., 2012) ⇒ Anuj K. Shah, Sendhil Mullainathan, and Eldar Shafir. (2012). “Some Consequences of Having Too Little." Science 338, no . 6107 doi:10.1126/science.1222426
  • QUOTE: Poor individuals often engage in behaviors, such as excessive borrowing, that reinforce the conditions of poverty. Some explanations for these behaviors focus on personality traits of the poor. Others emphasize environmental factors such as housing or financial access. We instead consider how certain behaviors stem simply from having less. We suggest that scarcity changes how people allocate attention: It leads them to engage more deeply in some problems while neglecting others. Across several experiments, we show that scarcity leads to attentional shifts that can help to explain behaviors such as overborrowing. We discuss how this mechanism might also explain other puzzles of poverty.

2011

• (Lusardi et al., 2011) ⇒ Annamaria Lusardi, Daniel J. Schneider, and Peter Tufano. (2011). “Financially Fragile Households: Evidence and Implications." No. w17072 . National Bureau of Economic Research. doi:10.3386/w17072
  • 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.

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