Determinants of debt portfolio diversification in Mexican households

Abstract

This research examines the determinants of debt management in Mexican households defined by the degree of diversification of their debt portfolio. We identify and correct the potential sample selection problem related to credit access using a Heckit approach. Evidence suggests that variables such as income, wealth, and the financial burden of the household, as well as the age, education, and employment situation of the head of the family, significantly impact whether a household concentrates or diversifies its debt. The main limitation is that the data used is only available for 2019, so it is impossible to perform temporal analysis. The originality of this work lies in constructing a debt concentration index as a proxy of debt management, which weights each credit instrument contracted by a household as a ratio of its total debt. We conclude that understanding Mexican families' credit dynamics can contribute to effectively applying public policies that improve their well-being.