How Extended Family Mental Health Issues Influence Household Portfolio Allocations

Abstract

Growing research links household financial decisions to physical and mental health status within the nuclear family. However, the focus on the nuclear family could underestimate the health-wealth effect. Research also finds that household wealth can decline when an extended family member experiences a physical health shock. We expand current economic modeling to investigate the connection between household portfolio allocations and the mental health of siblings. We hypothesize that mental health issues (psychological distress) outside of the nuclear family unit are a unique contributor to household portfolio allocation decisions. We use panel data and find that having at least one sibling with psychological distress decreases probability of risky asset ownership (stocks, mutual funds), decreases risky assets as a share of financial assets, and decreases total amount of risky asset holding. These results have important implications for understanding the connection between health, portfolio allocation, and wealth building.

Keywords: household finance, portfolio allocation, mental health

JEL Classification: G11, I14