4.3 More Extreme Financial Distress
The results so far suggest that while demographic and economic factors are important
determinants of financial distress, behaviour and financial literacy also matter. However, I
now want to assess whether these results hold for people experiencing more extreme forms
of financial distress such as running out of money and going into arrears for 3 months or
more. To do this, I use two additional questions in the Financial Capability Survey as
follows:
(1) In the past 12 months, how often have you and your partner run out of
money before the end of the week or month? Would you say it was ...?
(2) Within the last five years, have you found yourself in financial difficulties?
By that I mean being three months or more behind with payments on your
regular commitments.
Based on the first of these questions, I create a dummy variable “Run out of money”
which is equal to one for those respondents who report that they run out of money always,
most of the time or sometimes, and equal to zero if respondents report that they hardly
ever or never run out of money. 30 per cent of the sample report that they run out of
money at least some of the time. I use the second question to create a dummy variable
“Arrears” that captures people who have gone into arrears on regular commitments for a
period of 3 months or more. 15 per cent of the sample falls into this category. I repeat the
empirical analysis using these two more extreme forms of financial distress as dependent
variables. The results are shown in Table 9.
In the first column of Table 9, I examine the impact of the various demographic, eco-
nomic and behavioural variables on the incidence of running out of money. While the
results are similar to the earlier findings, there are some differences. Firstly, having depen-
dent children increases the probability of running out of money, as before, but this time the
effect is marked and significant only for respondents with three or more children. Secondly,
the British respondents are now 5 per cent more likely than the Irish respondents to run
out of money, whereas they were less likely than the Irish respondents to struggle on a
day-to-day basis. Finally, an examination of the coefficients on the behavioural and time
preference variables suggests that these are again important and significant determinants
of financial distress. However, the results now point to a greater role for being organised
in preventing people from running out of money. Organised individuals are 9 per cent less
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