Economic sentiment as a driver for household financial behavior
Abstract The study focused on investigating influence of economic sentiments on household financial decisions. A group of Polish households participated simultaneously in a longitudinal study on financial behavior and a consumer tendency survey. Combination of responses from the two surveys was used to investigate a link between economic situation assessment and household financial decisions. With the use of latent class modeling five distinct patterns of saving behavior and six distinct patterns of borrowing behavior were identified among respondents. Patterns in both these domains were confirmed as stable in time. Subsequently, with the use of individual data, a link between indicators from the consumer tendency survey and the evolution of household financial behavior in the domains of borrowing and savings was established. Consumer confidence stimulated debt for durables and mortgages but reduced debt uptake for unexpected expenditures or consumption purposes. Lower consumer confidence increased only likelihood of saving for consumption, confirming the precautionary motive of saving. Multi purpose and home renovation savings both correlated positively with consumer confidence.
Journal of Behavioral and Experimental Economics