The answer relies on a host of psychological and behavioral markers.
I was at an academic conference recently where, as part of a group, I spent a great deal of time thinking about the financial vulnerability of American consumers. Public policymakers, in particular, are concerned that far too many Americans are financially vulnerable. And when we hear statistics like “59 percent of Americans do not have enough savings to cover a $500 or $1,000 unexpected expense,” they are alarming.
What Exactly is Financial Vulnerability?
It turns out there is no widely-accepted definition of financial vulnerability. I spent the last couple of days looking at the psychological research on this issue, and here are my thoughts about how to determine how financially vulnerable you are.
Going strictly by the dictionary definition, vulnerable means “capable of being physically or emotionally wounded.” For our purposes, it is reasonable to define financially vulnerability as “the degree to which a person is capable of being injured financially when an adverse event happens.”