and debt repayment, while attitudinal factors (such as whether an individual is pro-credit
or anti-debt, or whether they see credit as useful but problematic or not) are important
and significant predictors.
Finally, while there is a growing literature which examines the causes of extreme forms
of financial distress such as mortgage default and repossessions, this literature does not take
account of behavioural or psychological factors. For example, Boheim and Taylor (2000)
use the British Household Panel Survey to examine evictions, repossessions and household
finance problems in the UK over the period 1991-1997. They find that previous experience of
financial distress is significantly and positively associated with the current financial position
of the household and the probability of eviction and that employment and higher income
and asset values decrease the probability of experiencing financial difficulties.
Burrows (1997) also examines the determinants of mortgage arrears in the UK, using
a sample of 8,000 households from the 1994/95 Survey of English Housing. He finds that
households are more likely to be in arrears if they are out of employment (or employed part-
time), if they work in the private sector (relative to the public sector) or if they bought
their property between 1987 and 1989. He also finds evidence to suggest that households
in which members have previously faced mortgage repayment difficulties are more likely to
be in arrears than other households.
In summary, while several papers examine different aspects of financial distress and the
impact of behaviour and financial literacy on financial outcomes, no one paper takes the
effect of economic and demographic factors, financial literacy and behaviour into account
in looking specifically at financial distress - be it mild or extreme. Relative to the existing
literature, therefore, this paper, which uses a large nationally representative dataset and
takes all of these factors into account, offers new insights on the key causes of financial
distress.
3 Data and Descriptive Statistics
3.1 The Financial Capability Surveys
The nature of financial decision-making has changed a lot in recent years, as individuals
are faced with a wider range of products, many of which are more complex than products
available in the past. In addition, people are increasingly being asked to take more respon-
sibility for their financial well-being, in particular with regards to providing for their future