Tail risks in household finance

We introduce a measure to quantify shared information within household financial portfolios under extreme events. We employ mutual information and copula entropy to capture tail dependencies among investment assets. We then study the impact of socio-economic factors on proactive financial behaviors using data from the 2022 Survey of Consumer Finances and highlight the necessity for tail-informed diversification strategies. Our findings underscore the importance of accounting for nonlinear dependencies to safeguard against unanticipated risks in extreme market scenarios. •This study introduces a measure to capture tail dependencies in household financial portfolios using mutual information and copula entropy.•The algorithm and estimation process are provided for estimating copula densities and computing mutual information in tail regions.•The impact of socioeconomic factors on household financial behaviors is examined using data from the 2022 Survey of Consumer Finances, and the importance of tail-informed diversification strategies is highlighted.