Depression and financial planning horizon

Youngjoo Choung, Swarnankur Chatterjee and Tae-Young Pak

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2022, vol. 98, issue C

Abstract: Major depression is associated with biased information processing and decision making. Previous research suggests that people dealing with depression view the future negatively and exhibit a higher discounting rate than healthy people do. This study tests the hypothesis that depression is associated with financial planning horizon–the time horizon by which individuals and households formulate their saving and spending schedules. Analyses conducted using data drawn from multiple waves of the Health and Retirement Study showed an inverse association between major depressive episodes and financial planning horizon, indicating that depressed people plan their finances over a shorter horizon. We also found that major depression is associated with various health and financial outcomes representing evidence of myopic decision making. The link between depression and financial planning horizon is partially explained by depression-oriented differences in behavioral traits, such as optimism/pessimism, perceived control, perceived mastery, and self-assessed survival probability. Overall, our findings point to a significant economic cost of depression, which compounds through myopic financial planning.

Keywords: Clinical depression; Major depressive episode; Financial planning horizon; Time preference; Intertemporal choice; Myopic decision (search for similar items in EconPapers)
JEL-codes: D14 D15 D91 I12 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:98:y:2022:i:c:s2214804322000519

DOI: 10.1016/j.socec.2022.101877

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