Emotional Safety Net Against Financial Distress

Does emotional support matter for financial outcomes? Using microdata from U.S. and Australian household surveys, I document that individuals who lack emotional support are more likely to experience financial hardship. This relationship is not confounded by other forms of support—such as financial assistance, care giving, and advice provision—and is confirmed by between-siblings and within-individual analyses as well as an instrumental variable strategy. The underlying mechanisms involve emotional support not only improving financial preparedness, but also aiding in coping with adverse shocks after they are realized. Overall, my findings offer a novel psychological perspective on household financial distress.