Behavioural Characteristics and Financial Distress



ucts and how much financial planning they engage in. The surveys also asked respondents
various questions that can be used to assess behavioural and psychological traits and the
UK survey contained questions that assessed basic financial literacy. While some previ-
ous work on financial distress has employed samples that have some of these features, the
Financial Capability Surveys are unique in having all of them.

Relative to the existing literature, therefore, this paper is the first to use a large repre-
sentative sample to examine the effects of behavioural characteristics on financial distress
rather than on asset accumulation, which is the focus of a number of other papers (Ameriks
et al (2003) or Lusardi and Mitchell (2007), for example).
1 To the author’s knowledge, the
paper is also the first to focus on both mild and extreme forms of financial distress. A num-
ber of previous papers have studied extreme forms of financial distress such as mortgage
arrears, default and repossessions. This sort of analysis is no doubt important, but it only
presents part of the picture as to why people get into financial trouble. It neglects the fact
that people may experience ‘milder’ forms of financial distress long before they default on
large debt obligations such as mortgages, and of course, people who do not have large debt
obligations might still get into financial difficulties.

The rest of this paper is structured as follows: In the next section I examine the existing
literature on the causes of financial distress. In Section 3 I introduce the data used in the
current study and present a socio-demographic and behavioural overview of the sample
according to individuals’ degree of financial distress. Section 4 covers the econometric tech-
niques used and presents the model results. In Section 5 I examine the issue of endogeneity
and reverse causality. Finally, Section 6 summarises and concludes.

2 Literature Review

In examining the literature on behaviour and financial distress, a number of points emerge.
Firstly, while certain recent studies examine the effect of behavioural traits such as plan-
ning on financial outcomes, these studies have tended to be based on data for the United
States and focussed on the impact of planning on net worth, rather than financial distress.
Ameriks et al (2003), for example, examine the role of planning in explaining why differ-
ent households end up with different levels of wealth. Using survey data for individuals

1 While a relatively small literature does examine the effect of behaviour on financial distress, the sample
sizes used in these studies tend to be small and are not nationally representative - see Livingstone and Lunt
(1992) for example.



More intriguing information

1. Improvement of Access to Data Sets from the Official Statistics
2. The name is absent
3. The name is absent
4. Der Einfluß der Direktdemokratie auf die Sozialpolitik
5. School Effectiveness in Developing Countries - A Summary of the Research Evidence
6. Wirkung einer Feiertagsbereinigung des Länderfinanzausgleichs: eine empirische Analyse des deutschen Finanzausgleichs
7. The name is absent
8. The name is absent
9. Philosophical Perspectives on Trustworthiness and Open-mindedness as Professional Virtues for the Practice of Nursing: Implications for he Moral Education of Nurses
10. Investment and Interest Rate Policy in the Open Economy
11. Modellgestützte Politikberatung im Naturschutz: Zur „optimalen“ Flächennutzung in der Agrarlandschaft des Biosphärenreservates „Mittlere Elbe“
12. Modelling the health related benefits of environmental policies - a CGE analysis for the eu countries with gem-e3
13. Exchange Rate Uncertainty and Trade Growth - A Comparison of Linear and Nonlinear (Forecasting) Models
14. EDUCATIONAL ACTIVITIES IN TENNESSEE ON WATER USE AND CONTROL - AGRICULTURAL PHASES
15. Protocol for Past BP: a randomised controlled trial of different blood pressure targets for people with a history of stroke of transient ischaemic attack (TIA) in primary care
16. Stillbirth in a Tertiary Care Referral Hospital in North Bengal - A Review of Causes, Risk Factors and Prevention Strategies
17. The name is absent
18. Density Estimation and Combination under Model Ambiguity
19. The name is absent
20. The name is absent