**2. Literature Review**

The author of this paper studied the literature on the causes of financial distress in households in European, North and South American, and East Asian countries. The literature review showed that the causes of personal bankruptcy do not depend on the region where consumers are located. In Figure 1, a classification of causes that considers the influence of macro-economic, micro-economic, and social factors on personal bankruptcy risk is presented. The proposed classification considers the entire spectrum of factors leading to an increased risk of consumer bankruptcy as discussed in detail in literature review below.

**Figure 1.** The classification of personal bankruptcy causes. Source: based on the author's own studies.

Generally, the causes of bankruptcy can be divided into two groups. The first consists of exogenous causes. These are the factors shaping the economic conditions affecting a country's households. Households do not have any influence over them and must adapt to the rules they are given for functioning within their country's economy. There is no doubt that the macro-economic situation directly affects the financial standing of consumers, as it influences the availability and cost of credit and the prospective income levels and wealth of households. The second group of causes of bankruptcies includes endogenous causes that can be divided into micro-economic and social factors. Both types of endogenous factors are shaped by the decisions of households, which is why it is important to identify them, as they can then be managed by consumers, leading to a reduced risk of insolvency. It is also important to note that both groups of risk factors overlap, as shown in Figure 1. The social factors are also overlapped by micro- and macro-economic factors, because in the majority of cases these factors are strongly influenced by the environment. The level of education of the consumer is correlated to financial awareness. The health condition of consumer can be shaped by such factors as age, gender, and to some extent even income

level. The level of debts can be affected by religious beliefs as proved in the literature review below.

The results of many studies (e.g., [14–18]) have confirmed the existence of a strong relationship between households' level of financial vulnerability and the unemployment rate, as increasing unemployment results in borrowers being unable to meet their repayment obligations. Shocks to the GDP are the second factor among the macro-economic variables affecting households' insolvency risk. They disrupt the sources of household income, which decreases households' ability to repay their debts. This condition gradually increases the probability of experiencing financial distress, causing foreclosures on the collateral used for securing bank credit, such as homes or cars [19–22]. The third macro-economic factor is the interest rate. When the lending rate increases, the cost of credit card payments, purchase loans, and personal loans also increases, becoming a significant financial burden for borrowers [21,23,24]. The inflation rate directly affects the interest rate, but by influencing the financial situation of enterprises, it can also affect the unemployment rate, as has been discussed [25,26]. The last, most common macro-economic variable affecting the global risk of personal bankruptcy is the exchange rate. The exchange rate clearly has a direct impact on the economic situation of enterprises (both exporters and importers), but it should also be noted that households are also under its influence, either directly (in case of, for example, incurring debts in foreign currencies) or indirectly (through increases in the cost of living in the case of countries dependent on imported goods, e.g., petrol or gas).

Social scientists have long been interested in the determinants of individuals' financial well-being [27]. Most studies have highlighted the following six factors, which are believed to have the biggest influence on an individual's risk of personal bankruptcy [28–33]: level of education, marital status, gender, income level, length of employment, and degree of indebtedness. Caputo [34] studied the influence of marital status and gender on households' risk of financial distress in the USA. He found that formerly married persons (i.e., those who had separated or divorced) were 3.6 times as likely to declare bankruptcy as married persons and that single persons were 4.4 times less likely to declare bankruptcy than married persons. In his study, it was also proven that women were more likely than men to declare personal bankruptcy between 1986 and 2004 in the USA. Traditionally, a person's level of education, income level, and degree of indebtedness have been studied in the literature, with there being clear evidence to support the influence of these factors on an individual's probability of declaring insolvency [35].

Financial vulnerability may also be driven by factors other than macro- and microeconomic ones, including materialism and lifestyle behaviors that may be induced by irresponsibility or short-sightedness on the part of consumers. These may, in turn, dramatically increase the risk of consumers declaring personal bankruptcy. Household attitudes and behavioral characteristics are known to be related to debt-related decisions (e.g., the likelihood of carrying debt and the amount of debt) [36]. For example, spending behaviors, compulsive shopping, saving for a goal, expectations about future income and the economy (e.g., the interest and inflation rates), and credit-related attitudes are commonly reported to be associated with debt-related decisions [36–38]. Among the social factors that may cause personal bankruptcy are health issues, as consumers are sometimes unable to cover huge medical expenses, forcing them to mortgage their homes [11]. Several studies have also been focused on specifically analyzing the relationship between religion and risk-taking attitudes. One of the latest studies conducted in Germany showed that religiously affiliated individuals were, in general, more risk-averse than non-religious people. Furthermore, it was proven that Muslims in Germany exhibited fewer risk-taking behaviors in general than Catholics and Protestants [39].

Nowadays, households encounter an environment characterized by a high level of financial complexity, which requires not only financial knowledge but also appropriate consumption decisions depending on both the macro-economic situation and the consumer's predisposition to make decisions that do not increase their risk of insolvency. Figure 2 presents the common profiles of consumers' financial risk behaviors. This classification

considers a broad spectrum of factors, from level of education, income, and marital status to impatience, snobbery, and financial literacy. Based on consumers' demographic resources (low vs. high) and consumption behaviors, such as self-control and financial awareness (low vs. high), four quadrants to classify the risk-taking behaviors of households were identified.

**Figure 2.** The common profiles of consumers' financial risk behaviors. Source: based on [17].

The first quadrant (Figure 2) represents the consumers burdened with high-risk behaviors. Such households are characterized, on the one hand, by low levels of financial awareness and self-control, and, on the other hand, by the availability of few demographic resources (e.g., poor education, low income, undesirable jobs, etc.). Thus, quadrant I represents the worst situation for consumers. The opposite of quadrant I is quadrant IV, which represents the group of households that is the least financially vulnerable. The consumers in this group are well-educated, high-income persons with good financial knowledge and reasonable, controlled attitudes toward consumerism.

Although the consumers who fall into quadrants II and III are not as risk-prone as those in quadrant I, these households are also of key interest for risk analysts because of the disconnect between their levels of financial literacy and demographic resources, which leads to moderately risky behaviors. For example, the consumers who fall into quadrant III lack financial awareness, which can present an increased risk of experiencing financial hardships regardless of their demographic status (e.g., level of education or income) because they have a low degree of self-control in the context of consumerism. In turn, the households classified as belonging to quadrant II may have an abundance of demographic resources, but they may still be subject to the risk of insolvency when they lack financial awareness of their uncontrolled consumption.
