Document Type

Article

Date of Original Version

2024

Department

Human Development and Family Science

Abstract

Purpose: The COVID-19 pandemic resulted in millions of lives lost. Beyond its devastating impact, did it also hurt consumer financial wellbeing? Consumer bankruptcy is often seen as a sign of experiencing extremely overextended debt burdens. This study aimed to identify factors associated with bankruptcy risks, specifically focusing on insolvency (when total debt exceeds total asset) and debt delinquency (being late in debt payments for 60 or more days).

Design/methodology/approach: Data was from the U.S. 2022 Survey of Consumer Finances. Two bankruptcy risk variables included insolvency and debt delinquency. Potential influencing factors included in the analyses were COVID-19 induced shocks, financial capability, ownership of various debts, and demographics. Logistic regression models were used to detect potential factors associated with bankruptcy risks.

Findings: First, a COVID-19-induced shock variable, new work schedule, reduced the risk of insolvency, and four shock variables (COVID infection with serious persistent symptoms, work disruption due to childcare responsibilities, work reduction, and work increase) increased the risk of debt delinquency. Second, financial capability factors played a crucial role. Desirable financial behavior reduced both risks of insolvency and debt delinquency. Subjective financial knowledge only reduced the risk of debt delinquency. Third, the types of debts held mattered. Holding credit card debt, student loans, and other debts increased the risks of both insolvency and debt delinquency. Interestingly, holding auto loans reduced the risk of insolvency.

Research limitations/implications: The data is limited to cross sectional so that findings are only correlational. The data is from one developed economy and the results may not be generalized to other economies, especially developing economies. Also, due to the lack of direct measure of consumer bankruptcy, only bankruptcy risks are measured in the study, but the findings still can be informative for understanding consumer bankruptcy behavior.

Practical implications: The results of this study have practical implications for government, business and nonprofit organizations to help consumers reduce the bankruptcy risks. The results suggest that when facing external shocks such as the COVID-19 pandemic, any work-related adjustments may help workers maintain income levels and reduce consumer bankruptcy risks, especially debt delinquency risk. Also, consumers should be encouraged to engage in desirable financial behaviors, such as spending within their income, seeking information before making financial decisions, using financial professionals, and planning ahead, to reduce both insolvency and debt delinquency risks.

Originality/value: This study is the first to examine COVID-19 induced factors on bankruptcy risks, enriching the literature of COVID-19 impacts on consumers. Bankruptcy risks are used as negative indicators of consumer wellbeing, expanding the literature of consumer wellbeing. The study also examines if financial capability has potential to reduce bankruptcy risks, an advancement in the literature of financial capability.

Publication Title, e.g., Journal

International Journal of Bank Marketing

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