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

42 Pages Posted: 11 Feb 2020 Last revised: 15 Oct 2020

See all articles by Adnan Balloch

Adnan Balloch

Massey University; Durham University Business School

Christian Engels

University of St Andrews - School of Management

Dennis Philip

Durham University - Department of Economics and Finance

Date Written: October 15, 2020

Abstract

This paper establishes a sizeable effect of mental health on individuals' abilities to accumulate wealth. In a representative panel of U.S. households, we find that psychological distress increases the likelihood of entering into and remaining for longer periods of time in deficit net worth, where levels of debt outstrip the values of assets. This relation arises largely from poor mental health interfering with everyday decision-making, leading to the depletion of assets and a disproportionate uptake of unsecured debt. Using survival analysis, we show that psychological distress accelerates entry into deficit net worth, as well as re-entry for individuals who have succeeded in regaining positive net wealth. We address causal identification challenges by exploiting the panel nature of the data and using an instrumental variables approach. Our findings highlight that longer-term implications on the inability to accumulate wealth due to mental distress can be significant.

Keywords: Psychological distress, Mental health, Net worth, Wealth accumulation

JEL Classification: D14, D31, I14

Suggested Citation

Balloch, Adnan and Engels, Christian and Philip, Dennis, When It Rains It Drains: Psychological Distress and Household Net Worth (October 15, 2020). 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 )

St Andrews, KY16 9AL
United Kingdom

Dennis Philip (Contact Author)

Durham University - Department of Economics and Finance ( email )

Department of Economics and Finance
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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