Title: Measuring household debt vulnerability in the euro area
Abstract: The financial crisis has emphasised the need for monitoring the indebtedness and vulnerability of households, and in particular identifying the characteristics of the highly indebted or credit constrained households that may pose a threat to financial stability. Many indicators of financial fragility are possible. To assess the debt vulnerability of households, we analyse the information about household debt as well as income and assets. We take advantage of the information available through the Household Finances and Consumption Survey (HFCS) to assess the debt burden and financial fragility at the household level. We track the situation of households with two twinned indicators: on one hand, the Debt Service Income ratio (DSI) gives an idea of the sustainability of the debt with regards to income. A household with a higher DSI ratio are more likely to face bankruptcy if an adverse shock to income, or to a lesser extent interest payments, occurs. On the other hand, the Debt-to-Asset ratio (DA) links the debt amount with the assets of the household. A high DA ratio highlights the households who would have difficulties paying back their debts, in particular in the case of liquidation. Households who combine both high DSI and DA ratios are thus highly sensitive to many kinds of shocks. Combining all relevant pieces of information for 15 euro area countries, the HFCS allows us to quantify and characterise the proportion of the population that can be considered as vulnerable, but also evaluate the amounts that could not be repaid if households went bankrupt. The heterogeneity between euro area countries is also assessed and linked with different national institutional features.
Publication Year: 2015
Publication Date: 2015-01-01
Language: en
Type: preprint
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Cited By Count: 2
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