A recent Journal of Marketing article sheds light on the common misperception that financial vulnerability only affects low-income consumers. The COVID-19 pandemic has exacerbated the financial vulnerability of many consumers struggling before 2020 and lacking the resources to overcome an unexpected financial setback.
Researchers have often focused on those with limited or modest incomes when studying financial vulnerability. Still, these studies reinforced the assumption that potential victims live in absolute poverty or low income. This current study indicates that most consumers across the socioeconomic spectrum may experience varying degrees of financial vulnerability at different points in their lives. Consumers can become financially vulnerable due to a combination of factors such as age (discrimination, retirement), life events (illness, divorce), economic issues (layoff, inflation), and unforeseen crises (natural disasters) that complicate access to short or long-term financial resources.
Consumer financial vulnerability (CFV) is the increased risk of future harm based on a consumer’s current access to financial resources. This includes personal income, personal assets, and financial resources from social relationships, government programs, and financial institutions. For example, young adults often rely on parents or grandparents when their income falls short. In contrast, older consumers rely on retirement savings and Social Security for income and Medicare for health insurance. The researchers pointed out the difference between financial vulnerability and financial harm: A consumer can be financially vulnerable but may or may not experience financial harm.
Some sources of vulnerability include income volatility. Commission-based sales, independent contractors, gig workers, and small business owners can experience fluctuating income. Another source is the lack of access to affordable health insurance despite having a reasonable income.
However, CFV is complex and requires further analysis. Current questionable actions may seem precarious but may be beneficial in the long term and vice versa. For example, a consumer may have to seek the assistance of a payday lender to cover short-term car repairs but it may help the individual keep their job in the long term if it means not missing work and losing income.
The study demonstrates how researchers and companies can estimate CFV using data from a personal finance app. This study provides valuable implications for policy development that promotes consumer well-being.
Sources: American Marketing Association, Eureka News Alert, Journal of Marketing
