Description

During the last years Chile has experienced a great expansion in access to household credit. This has led to important increases of indebtedness, in particular by the poorest income quintile. In this paper we analyze the evolution and the determinants of debt and over-indebtedness in last decade, as well as the robustness of the changes, using the Survey of Household Finances and the Social Protection Survey. The study also explores the role of shocks and preferences of individuals on household debt. The analysis shows that participation in indebtedness grows with income. We also find that the ratios of debt of the first quintile diminish significantly when considering the earning capacity of the household, so it can be inferred that this quintile would be less indebted than what can be thought from traditional indicators. On the other hand, the paper concludes that the effects of shocks (of health, income and spending on education) in the over-indebtedness are heterogeneous according to the different measures of debt used. Besides, it appears that individual characteristics such as having self-control problems, low self-esteem and low financial literacy are correlated with the level of household indebtedness.