When loss strikes twice: severe health shocks and financial well-being

Kaveh Majlesi (), Elin Molin () and Paula Roth ()
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Kaveh Majlesi: Monash University, Lund University, IZA and CEPR
Elin Molin: Lund University, UCFS, CED and KWC
Paula Roth: Stockholm School of Economics, UCFS and IFN

No 2026:11, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: We study how fatal and nonfatal health shocks affect households’ ability to meet their financial obligations. We find that fatal shocks substantially increase the likelihood of default and that housing wealth plays a key role as a self-insurance mechanism. Surviving spouses who experience the largest income losses are more likely to sell their homes, and those without housing wealth face a sharply higher risk of debt collection. In the most financially vulnerable families, these shocks even generate intergenerational spillovers. In contrast, nonfatal health shocks lead to only modest increases in default risk. Taken together, our findings suggest that strengthening survivors’ benefits for households with limited resources could improve welfare across generations.

Keywords: Financial Distress; Health shocks; Household Debt; Household Saving; Intergenerational Transmission (search for similar items in EconPapers)
JEL-codes: D14 G22 G51 I12 (search for similar items in EconPapers)
Pages: 86 pages
Date: 2026-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:ifauwp:2026_011

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