Financial hardship and saving behaviour: Bayesian analysis of British panel data

Publication type

Research Paper


Sarah Brown, Pulak Ghosh, Bhuvanesh Pareek and Karl Taylor

Publication date

Series Number



We explore whether a protective role for savings against future financial hardship exists
using household level panel data. We jointly model the incidence and extent of financial
problems, as well as the likelihood of having secured debt and the amount of monthly
secured debt repayments, allowing for dynamics and interdependence in both of the
two-part outcomes. A two-part process is important given the considerable inflation at
zero when analysing financial problems. The model is estimated using a flexible Bayesian
approach with correlated random effects and the findings suggest that: (i) saving on a
regular basis mitigates both the likelihood of experiencing, as well as the number of, future
financial problems; (ii) state dependence in financial problems exists; (iii) interdependence
exists between financial problems and secured debt, specifically higher levels of mortgage
debt are associated with an increased probability of experiencing financial hardship.


Poverty, Savings And Assets, Household Economics, Debt: Indebtedness and Finance