Expenditures and financial well-being
Event details
| Date | 04.03.2016 |
| Hour | 10:30 › 12:00 |
| Speaker | Francisco GOMES (London Business School) |
| Location | |
| Category | Conferences - Seminars |
We provide evidence that the most frequent reason for a deterioration in households’ financial situation is higher expenditures, while improvements in their finances are usually due to increases in earnings. We show that the expenditure increases are persistent and linked to: (i) fluctuations in the prices of goods that make a large proportion of households’ budget: food, energy, mortgage payments; (ii) life events: birth of the first child, divorce, health changes; (iii) emotions: feeling depressed, inability to face problems; and (iv) behaviors: saving, use of expensive debt. A worse financial situation reduces psychological well being, which in turn increases the probability of a further deterioration in the finances. Good financial management can reduce the probability of this happening. Our results highlight the importance of expenditures as a source of background risk and of expenditure management in financial education.
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