Household Financial Vulnerability in Kerala, India: A Focus Beyond Debt

Household financial vulnerability is not only about debt; however, research has not yet explored its diverse influencing factors. This study breaks new ground by assessing household financial vulnerability in Kerala, India. The study combines subjective measures with behavioural insights. Primary data were collected from 632 households in Kerala, India. We then developed a comprehensive household financial vulnerability index through non-linear principal component analysis, and fractional probit regression was utilized to assess the determinants. The index shows a mean vulnerability of 5.26 on a 10-point scale. Key determinants include age, income, marital status, financial behaviour patterns and financial literacy. Households with higher income and stronger financial literacy face lower financial vulnerability, whereas the unmarried face a higher risk of financial vulnerability. Also, responsible financial behaviour reduces household financial vulnerability. The current study adds to the existing literature by using primary data and focusing on determinants that were previously overlooked. These findings show the need for targeted policy measures to improve financial literacy and behaviour to enhance the households’ financial resilience.