Coupled with this, the typical household tends to have a limited personal track record in making financial decisions, since the purchase of financial products happens only infrequently. This is problematic, since the demands for financial sophistication and knowledge are sizeable if a consumer is to navigate safely through the options put forward by providers of financial services.
Risk is only shared with the lender if the latter grants further credit to bridge the difficult spell or agrees to a haircut if the borrower becomes insolvent. The value of equity capital, by contrast, always moves in line with events. Equity capital is rather like an insurance policy against risk and creates a buffer that can absorb losses.