An empirical analysis on household financial vulnerability in India: exploring the role of financial knowledge, impulsivity and money management skills

Abstract

PurposeThe COVID-19 pandemic has exposed the financial-economic vulnerability of the public and threatened the household financial stability, especially of the low-income group population, in developing economies such as India. The assessment of household financial vulnerability has gained considerable attention these days, especially in poor and developing countries. This article seeks to assess the level of household financial vulnerability in India, based on a household survey conducted across India.Design/methodology/approachThis paper has proposed a financial vulnerability index (FVI) based on three self-reported parameters: (1) making end meet, (2) perception of income shock and (3) perception of expenditure shock. Subsequently, the impact of various behavioural and socioeconomic factors on the proposed financial vulnerability index has been assessed using fractional probit regression.FindingsThe research findings indicate that higher financial knowledge, better money management skills and lower impulsivity in financial behaviour can reduce financial vulnerability. It is suggested that suitable financial literacy programmes be implemented for vulnerable sections of society to enhance their financial knowledge, improve money management skills and manage impulsivity, thereby helping them make informed financial decisions leading to their financial well-being.Originality/valueTo the best of the authors’ knowledge, none of the past studies have developed and assessed the financial vulnerability index in India. This study provides relevant recommendations for various financial sector regulators and government institutions in India.

Government emergency aid and perceived financial security in COVID-19: evidence from a sample of vulnerable women in Brazil

“…Studies have found that higher levels of resilience were associated with lower levels of financial fragility one year after the start of the pandemic (Clark and Mitchell, 2022). The women in our study exhibited financial fragility, particularly due to their low levels of financial security (Singh and Malik, 2022). Consequently, their financial resilience was also low.…”

“…Constructing financial knowledge and financial awareness can contribute to reducing financial vulnerability (Singh and Malik, 2022), allowing for prudent money management and a better perception of financial control (Lusardi et al ., 2021; O'Connor et al ., 2019). Moreover, it is important to monitor indicators of anxiety and financial stress, which can have long-term consequences, such as making retirement financial planning difficult (Hasler et al ., 2021) and reducing financial well-being.…”

“…Results from the research can be useful to governments that are interested in the financial security of their citizens, as vulnerable consumers and those with financial difficulties will depend on social programs and public assistance (Xiao and Yao, 2022). Therefore, it is relevant for public policy managers to be aware of financial vulnerabilities so that they can improve individuals' understanding of money management (Goyal et al, 2021b;Singh and Malik, 2022).…”

A Comprehensive Approach to Measuring Financial Vulnerability and Literacy: Unveiling Connections

“…In recent years, household FV has gained the attention of scholars and policymakers. Some studies have defined FV as a consequence of high levels of household debt (Allgood & Walstad, 2016; Disney & Gathergood, 2011; Ray et al, 2019), while broader definitions encompass households’ inability to meet basic living expenses (Loke, 2016; Singh & Malik, 2022) or unforeseen expenses (Lusardi et al, 2011; Philippas & Avdoulas, 2020), as well as to raise a given amount of funds to tackle a rush (Friedline & West, 2016; Lusardi et al, 2011; Philippas & Avdoulas, 2020; West & Mottola, 2016). Additionally, adverse economic shocks (e.g., interest or unemployment rates, adjustments in housing or retirement accounts…) can also render households financially vulnerable (Ali et al, 2020).…”

“…One possible explanation for this inconclusive evidence is the lack of a common definition of FV (Fernández-López, Álvarez-Espiño, Rey-Ares, & Castro-González, 2023; Seldal & Nyhus, 2022; Singh & Malik, 2022). Consequently, researchers have resorted to measuring FV using a single financial behavior or perspective, either objective or subjective.…”