I feel wealthy: A major determinant of Portuguese households’ indebtedness?

Abstract

This paper examines the relationship between household's house prices perception and the size of the household debt, using data from the first wave of the Household Finance and Consumption Survey. While the existing literature has focused mainly on the effects of housing wealth on consumption, we concentrate on debt levels, distinguishing mortgage debt from non-mortgage debt, and investigating over-indebtedness. Different measures of housing wealth appraisal are considered, controlling for tenure years. The findings reveal that housing wealth effects differ by type of loans and with the measure of housing wealth. Over-indebtedness is driven by the same factors that determine mortgage debt, suggesting a strong association between having outstanding liabilities from the primary residence and the risk of entering into default. Further estimations by different income and wealth levels revealed dissimilar housing wealth effects on the level of households' outstanding liabilities, the size of non-mortgage debt tending to raise with lower income and the level of accumulated over-debt tending to be larger among the wealthier.

Do social interactions matter for borrowing behaviour of the Europeans aged 50+?

“…This finding is consistent with those obtained by Altundere et al (2014), Brown et al (2016) and Georgarakos et al (2014). This significant association suggests that higher income earning may be the channel through which educational attainment is related to mortgage debt (Camões and Vale, 2020).…”

“…The savings profile over the life cycle would then follow an inverted U-shaped relationship, i.e. during the first years of life, indebtedness would increase, but during retirement, saving would decrease (Camões and Vale, 2020;G omez-Salvador et al, 2011;Yilmazer and DeVaney, 2005). As mentioned, the household heads of our sample are aged 50 or over, so it is expected that they are at a stage in their lives when the relationship between age and indebtedness is less intense.…”

“…Moreover, Zhu and Meeks (1994) indicate that better educated households have greater access to financial information on credit, as well as a better understanding of this information. Educational attainment often involves a higher potential income (Camões and Vale, 2020;Gan et al, 2016;Kim and DeVaney, 2001), increasing the household's financial capacity to borrow (Camões and Vale, 2020). Besides, some studies report that people with higher levels of education show more positive attitudes towards card spending (Lin et al, 2019), which leads to higher consumer debt.…”

“…Conversely, if they live alone, they may still have mortgage debt to repay. As an example, Camões and Vale (2020) found that divorce positively contributes to the probability of debt holding.…”