Several studies have linked rising insolvency rates to increasing inequality and argued that this might be explained by individuals’ desire to “keep up with the Joneses.” Using unique administrative register data on individual insolvencies in Sweden, I test whether the probability to become insolvent is related to one’s income distance relative to peers. Identification relies on area fixed effects, an extensive set of background characteristics, and varying the definition of the relevant reference group. I find that higher inequality increases the individual’s probability to become insolvent and that this effect is primarily driven by men.

We study how fatal and nonfatal health shocks affect households’ ability to meet their financial obligations. We find that fatal shocks substantially increase the likelihood of default and that housing wealth plays a key role as a self-insurance mechanism. Surviving spouses who experience the largest income losses are more likely to sell their homes, and those without housing wealth face a sharply higher risk of debt collection. In the most financially vulnerable families, these shocks even generate intergenerational spillovers. In contrast, nonfatal health shocks lead to only modest increases in default risk. Taken together, our findings suggest that strengthening survivors’ benefits for households with limited resources could improve welfare across generations.