Vulnerability to poverty and Financial Exclusion: The Italian Case

Poverty is a topic that is mainly associated with developing and rising economies. However, poverty is also present in developed economies and countries. Although poverty may lie under the surface, and for that reason can be hard to pinpoint, individual may be affected although being above the poverty line. The Economic ‘ double-dip’ had a devastating effect on the functioning of several southern economies and had structural impacts as well. Although some economies have been started to recover again, Southern Europe still faces these structural impacts. This crisis legacy consists of higher inequality, weakened public institutions, and infrastructure, social and political dissatisfactions (Zamora-Kapoor & Coller, 2014). One of the examples in southern Europe in which one can observe such patterns is Italy. A considerable amount household in the Italy face uncertain economic conditions which impact their well-being. To capture this risk we look in this research at vulnerability to Poverty of a household. This Vulnerability to poverty is a tool that measures the chances of household falling in poverty based on the characteristics of a household. The use of vulnerability to poverty measure allows to capture, the case of chronic poverty, a situation wherein households are trapped in poverty and have zero prospect of coming out. This also called ‘hardcore poverty’ Besides looking at “hardcore poverty” it also allows us to look at the case of potential poverty, namely a situation wherein non-poor households have a high chance of becoming poor in the future. To be more specific, vulnerability is the ex-ante risk, the forecasted risk of a household falling in poverty. In such situations, financial access is essential for the wellbeing of the described households. Saving accounts or any form of transaction account allows a vulnerable household to smooth its consumption paths when it faces an idiosyncratic shock or a serious change in income stream (Helms, 2010). In this research, we look at cases where households, not posses over such access and how this so-called financial exclusion influences the chances Italian households of becoming poor. What are the determinants of vulnerability to poverty in Italy? To answer this question we predict the vulnerability to poverty assessments by means of a three-step FGSL procedure. We used a cross-sectional household survey provided by the Banca di Italia, which compiled financial and social-demographic information on more than 8000 households over the period 2013-2015. We find that vulnerable to poverty is positively related to having no saving access/credit access. In analyzing the determinants of vulnerability to poverty three observations stood out; (i) being employed as a household head is associated with lower vulnerability to poverty for that household; (ii) this effect disappears if the household head is employed on a temporary basis; (iii) households with the immigrant background are associated with a greater chance of falling into to poverty. What kind of role plays financial exclusion in forecasted future poverty in Italy and the role of financial exclusion, there are three main findings. The results shows; (i) that access to credit devices can help to prevent households from slipping into poverty when such households face household-specific or economic shocks, (ii) access to saving or deposit device reduces the vulnerability to poverty (iii) while access to financial markets in the Italian context not necessarily leads to a reduction of household vulnerability to poverty. Turning to policy implications, the results of this study suggest poverty intervention aiming for financial inclusion may be effective in reducing vulnerability to poverty. Our results imply that simple saving/credit devices are likely to be effective in the reduction of poverty and vulnerability of poverty, especially when intervention is targeting households with an immigration background. Such a policy could be initiated on a national level by the bank of Italy and on an international level by the European Central Bank. The specific nature of such a policy should be further researched and discussed