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Households' financial fragility during the COVID-19 pandemic in Germany

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  • Cziriak, Marius

Abstract

I examine the financial fragility of German households during the second wave of COVID-19 infections in the winter of 2020/21 by analyzing the households' ability to come up with EUR 2,000 within one month. About one in three households reports being unable to cover an unexpected expense of EUR 2,000 within one month, with some subgroups being particularly at risk, including individuals with children, tenants, respondents without employment or in marginal employment, and with lower levels of income, wealth, or education. While most households have access to rainy day funds for financial emergencies, a noticeable fraction complements this with borrowing, relying on family and friends, or overdrawing their accounts. Households that experienced more severe income losses since the onset of the crisis are more likely to report being unable to cope with an unexpected expense and are more likely to complement their rainy day savings with funds from other sources. Notably, my findings underline that financial literacy may protect households' financial capabilities in times of crisis: Financial literacy is associated with lower financial fragility and appears to mitigate the negative consequences of income losses on the ability to cope with emergency expenses.

Suggested Citation

  • Cziriak, Marius, 2022. "Households' financial fragility during the COVID-19 pandemic in Germany," ZEW Discussion Papers 22-070, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:22070
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    References listed on IDEAS

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    1. Maarten C.J. van Rooij & Annamaria Lusardi & Rob J.M. Alessie, 2012. "Financial Literacy, Retirement Planning and Household Wealth," Economic Journal, Royal Economic Society, vol. 122(560), pages 449-478, May.
    2. van der Wielen, Wouter & Barrios, Salvador, 2021. "Economic sentiment during the COVID pandemic: Evidence from search behaviour in the EU," Journal of Economics and Business, Elsevier, vol. 115(C).
    3. repec:ecj:econjl:v:122:y:2012:i::p:449-478 is not listed on IDEAS
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    Cited by:

    1. Bucher-Koenen, Tabea & Fessler, Pirmin & Silgoner, Maria Antoinette, 2023. "Households' financial resilience, risk perceptions, and financial literacy: Evidence from a survey experiment," ZEW Discussion Papers 23-074, ZEW - Leibniz Centre for European Economic Research.
    2. Elena Moreno-García & Sergio Hernández-Mejía & Héctor Francisco Salazar Núñez, 2024. "Financial Literacy and Financial Fragility in Mexico," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 19(1), pages 1-21, Enero - M.

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    More about this item

    Keywords

    financial fragility; financial literacy; personal finance; financial behavior; COVID-19;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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