Liquidity‐poor Households in the Midst of the COVID‐19 Pandemic

Abstract

The COVID‐19 pandemic led to a huge surge in deposits, although little is known about how this was distributed. This paper overcomes the lack of timely micro‐data on households’ liquidity by looking at supervisory data, introducing a new method to estimate the trend in liquidity distribution and the percentage of liquidity‐poor households. We find that in 2020 there was a decrease both in the degree of deposit inequality among Italian households and in the share of liquidity‐poor households, alongside government support measures that allowed some households at the bottom of the liquidity ladder to save out of their declining income. The increase in households’ liquidity improved their ability to repay debts, and this could help spending patterns to rebound once confidence about the economic outlook is restored. Despite this, households with insufficient liquidity buffers still constitute a large share of population, making their debt repayment capacity dependent on the strength of the economic recovery.

Financial literacy for financial resilience: evidence from Cyprus during the pandemic period

“…Second, it documents a strong positive relation between financial knowledge proficiency level and the likelihood of being financially resilient in the pandemic period. This evidence adds to the results of a burgeoning literature that investigates the role of financial literacy in enabling people to better handle economic shocks and misfortunes in crisis periods across various countries (e.g., Lusardi, Schneider, and Tufano 2011;Lusardi et al 2021;Clark et al 2021;Brown, Collins, and Moulton 2022;Erdem and Rojahn 2022;Loschiavo and Graziano 2022). More importantly, our findings show that many Cypriot households were ill-prepared to face the economic consequences of the COVID-19 pandemic and indicate that financial illiteracy has significantly contributed to making people less financially resilient during crisis periods.…”