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

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.