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

Balloch, Adnan; Engels, Christian; Philip, Dennis

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Authors

Adnan Balloch

Christian Engels



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

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