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Indicators of financial vulnerability: a household level study

Author

Listed:
  • Valentina Michelangeli

    (Banca d'Italia)

  • Cristiana Rampazzi

    (Banca d'Italia)

Abstract

This paper compares two indicators of household vulnerability using the Bank of Italy�s Survey on Household Income and Wealth (2008-2014). According to the first indicator, a household is considered vulnerable if its debt service-to-income ratio exceeds 30 per cent and its income is below the median of the population. According to the second, a household is defined vulnerable if the sum of its income and liquid financial assets is not sufficient to cover debt payments and basic living costs for four months. While providing similar information on the proportion of households deemed vulnerable, the two indicators capture different aspects of the sector�s financial fragility: vulnerable households according to the first indicator have, on average, higher income, liquid assets and debt than those identified by the second indicator. Moreover, while the first indicator shows a lower correlation with payment arrears, its simplicity, timeliness and less arbitrary components make it better suited for cross-country comparisons.

Suggested Citation

  • Valentina Michelangeli & Cristiana Rampazzi, 2016. "Indicators of financial vulnerability: a household level study," Questioni di Economia e Finanza (Occasional Papers) 369, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_369_16
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2016-0369/QEF_369.pdf
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    Citations

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    Cited by:

    1. Faiella, Ivan & Lavecchia, Luciano & Michelangeli, Valentina & Mistretta, Alessandro, 2022. "A climate stress test on the financial vulnerability of Italian households and firms," Journal of Policy Modeling, Elsevier, vol. 44(2), pages 396-417.
    2. Michele Cantarella & Andrea Neri & Giovanna Ranalli, 2021. "Mind the wealth gap: a new allocation method to match micro and macro statistics on household wealth," Questioni di Economia e Finanza (Occasional Papers) 646, Bank of Italy, Economic Research and International Relations Area.
    3. Ján Buleca & Nikola Šubová & Lenka Malièká, 2022. "The Relationship between Household Wealth and Financial Vulnerability in the Post-communist Countries of the Euro Area," Journal of Economics / Ekonomicky casopis, Institute of Economic Research, Slovak Academy of Sciences, vol. 70(7-8), pages 569-588, July.

    More about this item

    Keywords

    household vulnerability; debt service; financial margin;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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