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

62 Pages Posted: 11 Feb 2020 Last revised: 3 Feb 2022

See all articles by Adnan Balloch

Adnan Balloch

Durham University Business School; Massey University

Christian Engels

University of St Andrews - School of Management

Dennis Philip

Durham University Business School

Date Written: February 2, 2022

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 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 explains 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; Negative net worth; Household wealth; Financial distress; Survival analysis

JEL Classification: D14, D31, I14

Suggested Citation

Balloch, Adnan and Balloch, Adnan and Engels, Christian and Philip, Dennis, When It Rains It Drains: Psychological Distress and Household Net Worth (February 2, 2022). Available at SSRN: https://ssrn.com/abstract=3521323

Adnan Balloch

Massey University ( email )

Wallace Street, Mount Cook
Wellington, 6021
New Zealand

Durham University Business School ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

Christian Engels

University of St Andrews - School of Management ( email )

The Gateway, North Haugh
St Andrews, KY16 9RJ
United Kingdom

HOME PAGE: http://https://www.st-andrews.ac.uk/management/people/ce50

Dennis Philip (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Mill Hill Lane
Durham, DH13LB
United Kingdom

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