When It Rains It Drains: Psychological Distress and Household Net Worth

Adnan Balloch, Christian Engels and Dennis Philip

Journal of Banking & Finance, 2022, vol. 143, issue C

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.

Keywords: Psychological distress; Mental health; Net worth; Negative net worth; Household wealth; Financial distress (search for similar items in EconPapers)
JEL-codes: D14 D31 I14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:143:y:2022:i:c:s037842662200200x

DOI: 10.1016/j.jbankfin.2022.106620

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