Why do households repay their debt during COVID 19 crisis? well-being and financial implications.

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Bank of England (Money and Credit, June 2020) reports that households repaid £7.4 bn of consumer credit in April 2020, the largest net repayment on record. The lockdowns due to COVID 19 could have initially shifted household behaviour towards debt repayments as households opt for prudent management of their finances, while recent data also show an increase in households savings. Alas, this might not persist as recent reports shows that British households could increase their debt exposure by £6bn due to the pandemic as they fall behind on credit card payments, council tax and utility bills (Guardian, 9 Jun 20). This could be also the case in other countries, i.e. US (FT, 23 Jun 20). The project explores whether higher household debt repayment would persist or it could be of transitory nature also in light of the severe adverse economic conditions due to the pandemic. Any findings on household debt repayments patterns would impact upon total indebtedness of the economy and upon financial stability. So it is of importance to understand what happens with household debt repayments in real time. In some detail, the project examines the impact of the pandemic and government interventions on household debt repayments and on household financial resilience, measured as months during which households can pay for subsistence consumption and debt with liquid assets in case of income loss. Lockdowns by reducing household spending and employment stimulus packages (i.e. furloughing) have affected debt repayments. Monetary expansion and debt repayment moratoriums have reduced household debt burdens. In addition, household specific characteristics, such as ethnicity, age, gender, assets, health, employment could interact with the above. The project uses a plethora of data to analyse household debt repayments and financial resilience also in light that supportive government interventions are going to be faced out while also lockdowns vary. The project employs an innovative methodology of a unique panel Vector Autoregressive model that nests neural networks. This methodology allows to study the responses in UK household debt repayments, financial resilience and well-being to shocks in COVID 19 and government interventions while examines the interconnectedness between household financial resilience, household well-being and financial stability. In addition, the project provides evidence, for comparison and to capture variability in government interventions and data, across countries: USA, Canada, Japan, France and Germany. The project's empirical findings would inform policy making decisions in real time while its forecasts have medium term horizon in line with the pandemic trends.