When it rains it drains : psychological distress and household net worth
Abstract
This paper establishes a sizeable negative effect of poor mental health on individuals’ net worth. In a representative panel of U.S. households, we find that a one standard deviation (or four unit) increase in Kessler’s K6 psychological distress level decreases net worth by 13.2 percent and increases by 5 percent the baseline risk of being in deficit net worth, where levels of debt outstrip the value of assets. Survival analyses further show that psychological distress accelerates the entry into and prolongs the stay in deficit net worth states, as well as increasing the probability of re-entry into deficit. Using a Blinder-Oaxaca decomposition, we find that differences in level of savings, medical debt and labor income predominantly explain the lower net worth and higher likelihood of deficit net worth of individuals with high psychological distress. Our findings highlight the significant longer-term implications of mental health on the net worth of individuals.
Citation
Balloch , A , Engels , C & Philip , D 2022 , ' When it rains it drains : psychological distress and household net worth ' , Journal of Banking & Finance , vol. 143 , 106620 . https://doi.org/10.1016/j.jbankfin.2022.106620
Publication
Journal of Banking & Finance
Status
Peer reviewed
ISSN
0378-4266Type
Journal article
Rights
Copyright © 2022 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
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