Behavioural Characteristics and Financial Distress



The results show that the probability of being in financial distress increases with age,
though only up to a certain point (late 30s) after which the age effect falls rapidly. The
results also show that married people are 6 per cent less likely than single people to expe-
rience financial distress, while people who have suffered relationship breakdown or the loss
of a partner are 6 per cent more likely. Respondents with dependent children are also more
likely to experience financial troubles than respondents with no dependent children, and
this effect increases the more children a person is responsible for. For example, respondents
with one dependent child are 8 per cent more likely to experience financial distress than
respondents with no dependent children while those with 3 or more dependent children
are 15 per cent more likely. British respondents are about 3 per cent less likely than Irish
respondents to report financial distress.

Work status also matters for financial distress; employed people are 18 per cent less
likely than unemployed people to experience financial distress; retired people are 14 per
cent less likely and inactive people are 6 per cent less likely. Having a college education
reduces the probability of financial troubles by 9 per cent while people with higher income
are also less likely to report that they are in financial distress.
5 Finally, having outstanding
debt increases the probability of financial distress by 12 per cent relative to individuals
with no outstanding debt.

Behavioural Characteristics: Next I examine the effects of behavioural traits on finan-
cial distress, as measured by the survey questions on impulsiveness, organisation and time
preference. I begin by including the measure of impulsiveness in the regression, the results
of which are reported in column 2 of Table 7. The coefficient on the impulsiveness vari-
able shows that impulsive people are 17 per cent more likely than non-impulsive people to
experience financial distress, and this result is statistically significant. The interpretation
and significance of the remaining variables is in line with those shown in the first column.

5 I repeat the regression replacing log income with dummy variables representing income quintiles to assess
if the effect of income on financial distress varies across quintiles. The effect is only statistically significant
for the top two income quintiles (relative to the bottom income quintile), and in particular suggests that
the 4th income quintile is 6 per cent less likely than the poorest 20 per cent of the sample to experience
financial distress while the richest 20 per cent of the sample are 15 per cent less likely than the poorest 20
per cent of the sample to experience financial distress.

16



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