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

Balloch, Adnan; Engels, Christian; Philip, Dennis

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 13.2 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 explain 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.

Citation

Balloch, A., Engels, C., & Philip, D. (2022). When It Rains It Drains: Psychological Distress and Household Net Worth. Journal of Banking and Finance, 143, https://doi.org/10.1016/j.jbankfin.2022.106620

• Journal Article Type: Article
• Acceptance Date: Jul 16, 2022
• Online Publication Date: Jul 21, 2021
• Publication Date: 2022
• Deposit Date: Jul 21, 2022
• Publicly Available Date: Jul 21, 2022
• Journal: Journal of Banking and Finance
• Print ISSN: 0378-4266
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 143
• DOI: https://doi.org/10.1016/j.jbankfin.2022.106620
• Public URL: https://durham-repository.worktribe.com/output/1197206