Spending Behavior Change and Financial Distress During the Great Recession
economic barriers, financial education
This study investigated whether spending habits before and during the Great Recession predicted financial distress. Financial distress was defined as failing to make mortgage and non-mortgage loan payments on time. Data from the 2007–2009 panel of the Survey of Consumer Finances revealed that one’s prerecession spending habit did not seem to matter. Respondents who reported in the earlier wave that they spent more than income but had begun to spend less than income during the recession were twice as likely to become financially distressed. However, those who were spending more than their income during the recession were three times as likely to be financially distressed. Being in good health, having income certainty, and above average risk tolerance lowered the odds of financial distress.