Can Consumer Survey produce a new measure of household financial distress?

Abstract

The goal of this paper is the pioneering application of the Harmonised EU Consumer Survey (CS) in tracking poverty levels in Croatia. As opposed to the annual EU Statistics on Income and Living Conditions (EU-SILC) variables, CS offers considerable benefit by providing monthly information on the financial position of consumers. The interest lies in calculating a CS-based composite indicator of household financial distress using factor analysis. The newly proposed indicator could serve as a timely indicator of cumulous socio-economic problems in Croatia, as well as in all other EU member states, and in that way significantly complement the EU-SILC data. The harmonised European CS offers three questions pointing to the financial situation of households (Q1: Financial situation over last 12 months, Q2: Financial situation over the next 12 months, and Q12: Statement on financial situation of the household). The main advantage of these questions is their monthly frequency, providing better detailed information than annual EU-SILC data on prevailing social trends. Factor analysis calculated the new CS composite indicator of household financial distress based on three selected CS variables, as mentioned above. One factor was extracted, the factor scores were calculated, and then compared to the chosen variables from the EU-SILC data.