Is Financial Fragility a Matter of Illiquidity? An Appraisal for Italian Households

The aim of this paper is to assess the role played by the composition of the household portfolio besides standard determinants of financial fragility (e.g. income, indebtedness, age, gender, financial literacy). Our analyses provide a contribution on these issues by taking the case of Italy, which lends itself to the investigation given the very peculiar portfolio composition (high level of housing on the one hand, low level of indebtedness and financial diversification on the other). First, we propose a novel definition of financial fragility. Second, based on this new measure, we use data drawn from the 1998-2008 Bank of Italy Survey on Household Income and Wealth (SHIW) and we perform a probit analysis to investigate the main determinants of financial fragility. The results highlight that our definition confirms the role played by most usual marker of fragility confirmed but emphasizes new dimensions of financially fragile households