Skating on Thin Ice: New Evidence on Financial Fragility

Abstract

This paper examines the financial fragility of Dutch households by assessing their ability to raise €2000 within a month in the event of a financial emergency. We show that one in seven Dutch households was financially fragile well before the start of the pandemic and resulting slow-down of the economy. The most fragile groups were the young, households with children, and those with lower education and income levels. While most households relied on their savings to cope with a financial emergency, other coping methods include seeking help from family and friends or credit card borrowing. Further, our findings show that financial and probability literacy are associated with financial fragility and the chosen methods to cope with a financial emergency. These findings emphasize the importance of financial knowledge and numerical ability for financial decision-making. The results of this study can be used to design targeted policies and financial education initiatives.