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The financial fragility of European households in the time of COVID-19

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The financial fragility of European households in the time of COVID-19

Bruegel,

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Even before COVID-19, a good number of European Union households were financially vulnerable.

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This seminal study from economists Maria Demertzis, Marta Domínguez-Jiménez and Annamaria Lusardi assesses the financial condition of households in the European Union. Their analysis finds that, even before COVID-19, one in three families was unable to meet an unforeseen jolt to normal expenses, a situation now made more perilous by the pandemic lockdowns. The authors argue for different policy responses across EU member states to strengthen people’s “financial resilience,” although educating households about financial preparedness is an across-the-board imperative.

Summary

“Financial fragility” in the European Union was prevalent even before the coronavirus outbreak.

The notion of financial fragility arose in the United States in the aftermath of the 2008 economic crisis. Experts wanted to understand whether households’ inability to withstand financial upsets could threaten the overall economy. A 2011 survey of Americans defined the financially fragile as those unable to “come up with $2,000 if an unexpected need arose within a month.” In January 2020, the size of that US subpopulation stood at 27%. A 2018 survey asked EU respondents if they could handle “a shock equivalent to one month’s income...

About the Authors

Maria Demertzis is the deputy director of Bruegel, where Marta Domínguez-Jiménez is a research assistant. Annamaria Lusardi is the academic director of the George Washington University Global Financial Literacy Excellence Center.

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