Debt Stress, Coping Strategies, and Financial Well-being among Middle-Income Households: Evidence from India

Abstract

This study examines the relationship between debt stress, coping strategies, financial literacy, and financial well-being among urban middle-income households in India. The rapid expansion of consumer credit and digital lending has increased household indebtedness, raising concerns about financial vulnerability. Using primary survey data from 400 households in Mumbai, Pune, and Nashik, the study employs Structural Equation Modelling (SEM) to analyse the relationships between debt burden, debt stress, coping strategies, and financial well-being.The findings show that higher debt burden significantly increases debt stress among households. Debt stress influences both adaptive and maladaptive coping behaviours, reflecting behavioural responses to financial pressure. Maladaptive coping strategies significantly reduce financial well-being, whereas adaptive coping strategies do not have a significant direct effect. Mediation analysis indicates that coping strategies fully mediate the relationship between debt stress and financial well-being, while financial literacy significantly moderates this relationship. These results suggest that financially literate households are better able to manage financial stress.