Search Results (10)

This paper analyzes the 1/3 Financial Rule, a method of allocating income equally among debt repayment, savings, and living expenses. Through mathematical modeling, game theory, behavioral finance, and technological analysis, we examine the rule’s potential for supporting household financial stability and reducing bankruptcy risk. The research develops theoretical foundations using utility maximization theory, demonstrating how equal allocation emerges as a solution under standard economic assumptions. The game-theoretic analysis explores the rule’s effectiveness across different household structures, revealing potential strategic advantages in financial decision-making. We investigate psychological factors influencing financial choices, including cognitive biases and neurobiological mechanisms that impact economic behavior. Technological approaches, such as AI-driven personalization, blockchain tracking, and smart contract applications, are examined for their potential to support financial planning. Empirical validation using U.S. Census data and longitudinal studies assesses the rule’s performance across various household types. Stress testing under different economic conditions provides insights into its adaptability and resilience. The research integrates mathematical analysis with behavioral insights and technological perspectives to develop a comprehensive approach to household financial management. Full article

This paper examines the usefulness of logit regression in forecasting the consumer bankruptcy of households using an imbalanced dataset. The research on consumer bankruptcy prediction is of paramount importance as it aims to build statistical models that can identify consumers in a difficult financial situation that may lead to consumer bankruptcy. In the face of the current global pandemic crisis, the future of household finances is uncertain. The change of the macroeconomic and microeconomic situation of households requires searching for better and more precise methods. The research relies on four samples of households: two learning samples (imbalanced and balanced) and two testing samples (imbalanced and balanced) from the Survey of Consumer Finances (SCF) which was conducted in the United States. The results show that the predictive performance of the logit model based on a balanced sample is more effective compared to the one based on an imbalanced sample. Furthermore, mortgage debt to assets ratio, age, being married, having credit constraints, payday loans or payments more than 60 days past due in the last year appear to be predictors of consumer bankruptcy which increase the risk of becoming bankrupt. Moreover, both the ratio of credit card debt to overall debt and owning a house decrease the risk of going bankrupt. Full article

This paper studies the impact of a high-frequency investor sentiment measure (New FEARS) on the returns of foreign securities listed in U.S. markets as American Depository Receipts (ADRs). We recreate a high-frequency investor sentiment measure by aggregating search volume indices (SVIs) for a set of negative economic search terms. We find that ADR aggregate market returns exhibit a negative reaction to increases in searches for negative economic terms such as “recession”, “crisis”, and “bankruptcy” by U.S. households. This is the first paper to measure the effects of high-frequency investor sentiment on cross-listed securities. Moreover, the results are consistent throughout our study regardless of the variation of sentiment and aggregate market return measure we use. We also explore ADR regional market indices and show that Latin American ADRs are more sensitive to this investor sentiment measure. Full article

Using cross-sectional data from a nation-wide survey of American head-of-households conducted in the spring of 2010, we examined the ameliorating effects of economic literacy on the probability of specific household financial outcomes resulting from the 2008 financial crisis and the associated Great Recession. A series of probit regressions were estimated to capture the impact of economic literacy on the probability that households experienced job loss, delinquent mortgage payments, delinquent credit card payments, delinquent auto loan payments, loss of home, and personal bankruptcy. The head-of-household’s economic literacy was measured by the level of formal education received in economics and by the score achieved on an in-survey quiz of basic economic concepts and principles. The results indicate that realized quiz scores were correlated with the mitigation of job loss, late payment behavior, and personal bankruptcy, ceteris paribus. However, the results for the impact of formal economic coursework in school were mixed. Full article

This paper is an evaluation of the common macro-economic, micro-economic, and social factors affecting households’ financial situations. Moreover, the author’s objective was to develop a fuzzy logic model for forecasting fluctuations in the number of nonperforming consumer loans in a country using the example of Poland. This study represents one of the first attempts in the global literature to develop such a forecasting model based on macro-economic factors. The findings confirm the usefulness of the proposed innovative approach to forecasting the volume of household insolvencies in a country. Full article

The economic crisis triggered by the COVID-19 outbreak has severely affected the global economy. The ultimate scale of the recession is yet to be determined, but it is likely to be the most dramatic slump since World War II. The impact of the crisis on the financial sector, especially consumer finance, could almost instantly be observed. The article shows how determination and consistency in regulatory actions counteracts the effects of the pandemic crisis for the banking sector and consumer finance. The conducted research has shown the existence of a number of social phenomena typical of this type of global crisis, such as shopping panic, reduced creditworthiness of households related to loss of income, unemployment and increased crime. At the same time, the actions of financial market regulators turned out to be very effective (no negative structural phenomena occurred in the financial market). The accuracy of the selection of instruments and the speed of action limited the social and financial effects of the pandemic, including a loan repayment memorandum, limiting the cost of consumer loans and supporting the banking sector, which will limit the scale of excessive household debt and consumer bankruptcies, and companies were also supported. The research was conducted on the basis of available literature on the subject, market analyses and a review of regulations implemented at the central level and in individual EU member states. Full article

This paper examines the usefulness of statistical methods in forecasting the financial energy of households. The study’s objective is to create the innovative ratios that combine both financial and demographic information of households and implement them in the forecasting models. To conduct this objective, six forecasting models are developed using three different methods—discriminant analysis, logit analysis, and decision trees separately for households in Poland and Taiwan. Such a research approach will answer the question whether the implementation of constructed ratios can increase effectiveness of the forecasting model and its’ versatility between different economic regions. The research relies on four samples of households—two learning samples and two testing samples (one for each country) consisting of 2400 households from both countries. This study is one of the first attempts in the literature globally to develop forecasting models based on ratios constructed with a combination of two different types of variables—one financial with one demographic variable. Findings confirm the high usability of the proposed innovative approach for forecasting the financial energy of households by taking into account a wide spectrum of diagnostic variables representing the financial strength of consumers. Full article

This paper looks at arrears among US households between 1995 and 2013. It uses household data from the Survey of Consumer Finances (SCF) where arrears occur when a household reports it “sometimes got behind or missed a payment”. The key contribution is that it decomposes the change in arrears into a behavioural part and a compositional part. Older poorer households increased arrears between 1995 and 2001 (this reversed in 2004). Younger middle-income households increased arrears in 2004. Following bankruptcy reform, wealthier households under 50 reduced their arrears between 2004 and 2007. During the sub-prime recession, everyone except younger low income households increased their arrears. The decomposition exercise shows that most of the changes over time are attributed to changes in arrears once the loan is given and not to the change in the composition of the pool of borrowers. Full article

Political instability and conflicts are contemporary problems across the Middle East. They threaten not only basic security, but also infrastructure performance. Supply infrastructure, providing basic services such as water and electricity, has been subjected to damage, capacity deterioration, and the bankruptcy of public providers. Often, in conflict countries such as Yemen, the continuity of basic supply is only possible thanks to adaptation efforts on the community and household levels. This paper examines the conflict resilience of water and energy supply infrastructure in Yemen during the armed conflict 2015–today. It contributes to resilience studies by linking knowledge on state fragility and conflicts, humanitarian aid, and infrastructure resilience. The paper presents adaptation responses of communities and public entities in the water and energy sectors in Yemen and critically evaluates these responses from the perspective of conflict resilience of infrastructure. The gained insights reaffirm the notion about the remarkable adaptive capacities of communities during conflicts and the importance of incorporating community-level adaptation responses into larger efforts to enhance the conflict resilience of infrastructure systems. Full article

This paper investigates the impact of what the extant literature has come to view as some of the major causes of the 2007 US housing market crisis. In particular we investigate the hypothesized effect of, lax financial regulations, the “savings glut” that is invested in the US from abroad, government support for increased home ownership, rising homeowners’ equity due to the real-estate boom, expansionary monetary policy, and bankruptcy reform. We examine how these hypothesized causes, working through household and institutional level decision-making, based on information availability and incentives, influenced the outcomes in the market for homes. Using a system dynamics model of household finance, we overlay the hypothesized causes chronologically to extrapolate their real-world simultaneous impact and test the hypothesis that they could have together led to the crisis, by simulating and checking against observed data. We find that with the exception of lax financial regulations, each cause by itself provides only a partial explanation of the crisis. Interestingly, the controversial expansionary monetary policy of the Federal Reserve, blamed by some for fueling the crisis, actually prevents the housing market boom from becoming too large. However on the downside, it discourages household savings and causes the fall in home prices to be deeper, due to weak household finances that result from low savings. We confront our model’s assumptions and outcomes with US economic data. We find our model assumptions are justified and simulation results are strongly supported by the data. Full article