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Hard Times! How do Households Cope with Financial Difficulties? Evidence from the Swiss Household Panel

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This study investigates impact of debt arrears and various consequential compensatory actions on self-reported satisfaction with life and the financial situation. The link between financial difficulties and the responses they demand has rarely been translated into satisfaction measures in the past. This study informs the literature about actual consequences of problems with arrears and impact of different coping strategies on household satisfaction measures. To address the questions at hand, data from the six (2010–2015) waves of the Swiss Household Panel were examined. A panel data model with fixed effects estimator was applied to account for unobserved population heterogeneity and mitigate the issues of omitted variables. The study confirmed that severe debt problems disproportionally affected self-reported satisfaction measures. Responses to arrears, if representing likely long-term solutions, did not signify further deterioration in self-reported measures. However, if arrears required resort to bank credit, disposal of household valuables or borrowing from family and friends, satisfaction with the household financial situation and household head life satisfaction were likely to suffer more.

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  1. 1.

    Local and country level institutions, as well as policy for alleviation of the consequences of arrears are among the economic factors responsible for severity of arrears problems (Duygan-Bump and Grant 2009).

  2. 2.

    Unsupportable debt occurs when financial resources within a household are not sufficient for regular servicing of instalments.

  3. 3.

    The impact on real and financial assets can be very difficult to measure because, as demonstrated by Bridges and Disney (2004), if not liquidity constrained, households manage the problem of arrears by revolving their debts. Thus, before leading to bankruptcy, debts are more likely to exert the psychological pressure first.

  4. 4.

    It is beyond the scope of the paper to analyse causal influence between specific responses to arrears and satisfaction measures as endogeneity in response to arrears could not easily be circumvented.

  5. 5.

    Exact wording of the question is “Since (month, year) have you experienced problems which resulted in arrears in payments of your household bills”; the interviewer is obliged to insert the date preceding the interview by 12 months.

  6. 6.

    Rhemtulla et al. (2012) argued that categorical variables with five or more categories could be used in this manner without negatively influencing results.

  7. 7.

    This rise should be interpreted with caution as a refreshment sample was injected into the SHP in 2013. Due to the rapidly changing social and cultural composition of Swiss society it might have caused a level shift in some variables. Additionally, the refreshment sample was drawn from the Stichprobenrahmen für die Personen- und Haushaltserhebungen (SRPH), which implied sampling based on individuals rather than households.

  8. 8.

    Gender and language spoken were reflected in pooled regression models; however, it was not possible to include them in the fixed effects panel regression model, being generally invariant in the longitudinal setting.

  9. 9.

    Although in pooled OLS, number of years in education proved to be positively correlated with financial satisfaction (however not related with general life satisfaction of the household head), negative relation between satisfaction measures and years of education was an unexpected outcome of panel regressions. In the longitudinal setting with fixed effects panel regression model, it might indicate that additional years of education are associated with additional expenses and decreased amount of time available for other activities thus negatively affecting satisfaction. It might also be that people more likely to lose their jobs are also more likely to increase their time in education. Part of this effect might therefore be associated with job uncertainty (also potentially decreasing satisfaction) and thus captured by this variable. These explanations are, however, very speculative and should be investigated in more detail in future work.

  10. 10.

    It is evident that impact of arrears on the financial and general situation satisfaction obtained from fixed effects model is less pronounced than in the OLS case. It shows that a set of household level characteristics responsible for both prevalence of arrears and the satisfaction assessments might exist beyond those presented. Some households with generally lower assessments might have been less likely to clear their accounts but it cannot be stated that inability to clear debts was responsible for decrease in satisfaction measures.

  11. 11.

    Results for Italian speaking households, due to small sample size, were not included. Estimations for this group are available upon request.


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The work was financed within the 7th Framework Programme [FP7-PEOPLE COFUND No. 609402 –“2020 Researchers: Train 2 Move” (T2 M)]. Author would like to thank two anonymous reviewers and Patrick Fox for their very helpful comments. This study has been realized using the data collected by the Swiss Household Panel (SHP), which is based at the Swiss Centre of Expertise in the Social Sciences FORS. The SHP project is financed by the Swiss National Science Foundation.

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Correspondence to Piotr Białowolski.

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Białowolski, P. Hard Times! How do Households Cope with Financial Difficulties? Evidence from the Swiss Household Panel. Soc Indic Res 139, 147–161 (2018). https://doi.org/10.1007/s11205-017-1711-4

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  • Arrears
  • Financial situation
  • Life satisfaction
  • Longitudinal data
  • Swiss Household Panel