The Financial Vulnerability of European Households

The main objective of this paper is to analyse the concept of financial vulnerability and to explore the financial vulnerability of European households. Financial vulnerability is associated with debt burden, liquidity, risk management, instability, economic and financial distress. Financial vulnerability is highly complex but relevant because of the close link between the financial stability of households and that of financial institutions, which affects not only the social, financial and psychological well-being of households, but also politics and economics at the macroeconomic level. The paper presents the understanding of financial vulnerability, its structure and the main drivers of household financial vulnerability in the European region. The study is based on data from the Household Finance and Consumption Survey (HFCS). The analysis of the data reveals that household liquidity in the European region is a more important determinant of financial vulnerability than household debt and debt burden.