Disentangling Vulnerability through Consumer Behavior: The Role of Financial Health

This paper analyzes the effect of financial participation on consumer's financial vulnerability, which is pervasive in the developing world. The financial behavior of consumers (i.e. financial health) has a greater positive effect on financial vulnerability than the narrower concept of financial inclusion.

Key points

• Key points:
• Financial health has an impact on financial vulnerability, and this impact is higher than that derived from financial inclusion.
• A primary set of relevant factors affecting financial vulnerability are human capital and financial literacy. The higher the level of these variables, the higher the probability of being financially safe. In the case of financial literacy, the impact is more important when we focus on interest rate issues.
• A second set of variables, which effect is also important but more complex, include the structure of income and the environment in which individuals live.
• Financial vulnerability is pervasive in the countries included in our sample (Bolivia, Chile, Colombia, Ecuador, and Peru).

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