Household Debt, Financial Distress, and Consumption Smoothing Among Nigerian Urban Households

Household over-indebtedness represents a growing welfare concern in Nigeria's expanding urban economy, where the proliferation of digital credit platforms, consumer finance products, and informal lending has made credit widely accessible even to income-constrained households. This study develops a theoretical model of household debt, financial distress, and consumption smoothing behaviour in the context of low-income urban Nigeria and estimates the model using original household survey data. The theoretical contribution is a buffer stock savings model with borrowing constraints and financial distress thresholds that generates predictions about the non-linear relationship between debt load and consumption smoothing capacity. The model incorporates the specific institutional features of Nigerian household credit markets, including the high cost of formal credit, the prevalence of salary-based informal lending, and the absence of a functioning personal insolvency framework. The empirical application uses a purpose-designed household survey conducted across Lagos, Kano, Ibadan, and Enugu, covering 3,000 urban households stratified by income quintile and household debt status. The survey collects longitudinal data through two waves eighteen months apart, enabling estimation of within-household changes in debt, distress, and consumption. The structural model is estimated using a combination of maximum likelihood and simulated method of moments. A mediation analysis decomposes the total debt-consumption relationship into the liquidity provision effect and the financial distress channel. The theoretical framework integrates the household finance literature, the debt and well-being literature, and the incomplete markets macro-economics of consumption insurance. The PhD-level contribution lies in the theoretical model development, the original high-quality household dataset, and the structural estimation approach. Findings carry implications for the Central Bank of Nigeria's consumer credit framework and for financial consumer protection policy. Keywords: household debt, financial distress, consumption smoothing, urban Nigeria, consumer credit