Aspects of consumer financial vulnerability

Abstract

The unstable financial situation represents one of the stress financial indicators in households. If it is considered as an indicator of financial vulnerability, then its goal is to identify those households experiencing fragile financial situation The literature is taking into consideration the aspect from financial environment, consumer psychology and aspects concerning private finance. Economic theory regarding household creditworthiness is taking into account two concepts that are explaining the individual or household behavior: life cycle hypothesis and permanent income hypothesis. The life cycle hypothesis presume that individuals are sorting their assets in a psychological way in category such as those that are belonging to current income or future income or belonging to current or future wealth. Permanent income hypothesis is related by to life cycle theory. Some authors suggest that individuals are basing their consumption on they perceive as permanent income, the income that they are expecting to earn throughout their lives. The hypothesis presumes that the consuming expenditures are not determined by the current income but rather by the income expectations on long term of household. The consumer are more willing to maintain a level of consumption related to permanent income and less by the fluctuations appearing in the current income.