No. 222 – Analysing financial vulnerability by income group

In this paper we examine credit market participation and financial vulnerability by income, making use of a large sample of individuals aged 25-54. From 2005 to 2011 the percentage of individuals with more than €75,000 of debt increased, mainly as a result of slower debt repayment. Developments differed across income classes: the new borrowers were mainly concentrated in higher income classes, while the slowdown in debt repayment was more pronounced for the middle and lower income groups. During the period debt-servicing difficulties also increased: the delinquency rate in the poorest quintile of the population was 10 times higher than that in the richest quintile. This gap widened further in the wake of the global financial crisis. Our estimates show that income instability significantly increased the prevalence of financial distress. However, the high concentration of debt in the richest income classes helped to mitigate banks' overall risk.