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date: 14 November 2018

Financial Strain and Health

Summary and Keywords

One of the most fundamental results in health economics is that a greater socio-economic status is associated with better health outcomes. However, the experience of financial pressure and lack of resources transcends the notion of low income and poverty. Families of all income categories can experience financial pressure and lack of resources. This article reviews the literature examining the relationship between financial strain and various health outcomes. There are three main approaches to the measurement of financial strain found in the research literature, each one capturing a slightly different aspect: the family’s debt position, the availability of emergency funds, and inability to meet current financial obligations.

There are two main hypotheses explaining how financial strain may affect health. First, financial strain indicates a lower amount of financial resources available to individuals and families. This may have a dual impact on health. On the one hand, lower financial resources may lead to a decrease in consumption of substances such as tobacco that are harmful to health. On the other hand, lower financial resources may also negatively affect healthcare access, healthcare utilization, and adherence to treatment, with each contributing to a decline in health. Second, financial strain may produce greater uncertainty with regard to the availability of financial resources at present as well as in the future, thereby resulting in elevated stress, which may, in turn, result in poorer health outcomes. Examining the relationship between financial strain and health is complicated because it appears to be bidirectional. It is not only the case that financial strain may impact health but that health may impact financial strain.

The research literature consistently finds that financial strain has a detrimental impact on a variety of mental health outcomes. This relationship has been documented for a variety of financial strain indicators, including non-collateralized (unsecure) debt, mortgage debt, and the inability to meet current financial obligations. The research on the association between financial strain and health behavior outcomes is more ambiguous. As one example, there are mixed results concerning whether financial strain results in a higher likelihood of obesity. This research has considered various indicators of financial strain, including credit card debt and the inability to meet current financial obligations. It appears that both among adults and children there is no consistent evidence on the impact of financial strain on body weight. Similarly, the results on the impact of financial strain on alcohol use and substance abuse are mixed.

A number of significant questions regarding the relationship between financial strain and health remain unresolved. The majority of the existing studies focus on health outcomes among adults. There is a lack of understanding regarding how family exposure to financial strain can affect children. Additionally, very little is known about the implications of long-term exposure to financial strain. There are also some very important methodological challenges in this area of research related to establishing causality. Establishing causality and learning more about the implications of the exposure to financial strain could have important policy implications for a variety of safety net programs.

Keywords: health, health behaviors, mental health, financial strain, financial hardship, financial stress

Introduction

One of the most fundamental results in health economics is that a greater socio-economic status is associated with better health outcomes. Historically, the idea that socio-economic status and a health are related first emerged in the context of poverty (Marmot, 2002). Later, researchers learned that health is associated with income above the poverty level (Chetty et al., 2016; Deaton, 2002). However, apart from low income and poverty, the experience of financial pressure and lack of resources can also harm an individual’s health.

For instance, in 2016 , among all U.S. households in the mid-income quintile 42.8% did not save any money and 53% had revolving credit card debt (Bricker et al., 2017). In addition, among all households in the mid-income quintile with debt of any kind, 8.3% spent more than 40% of their family income on debt repayments and 9.1% had payments overdue 60 days or more (Bricker et al., 2017). Families of all income categories can experience financial pressure and lack of resources. Such experiences are often labeled in the literature by the general term financial strain.

The evidence that financial strain is associated with poorer health can be found across countries, various population groups, and various health and health behavior outcomes. This article reviews the literature examining the relationship between financial strain and various health outcomes. Section “What Is Financial Strain?” discusses how financial strain is measured and characterized in the research literature. Next, section “How Can Financial Strain Affect Health?” discusses the causal pathways that may link financial strain and health. Then sections “Debt and Mental Health” and “Health, Health Behaviors, and Financial Strain” consider existing evidence on the relationship between financial strain and various health outcomes. Section “Financial Strain and Economic Shocks” discusses a closely related literature on the relationship between economic shocks and health. Finally, section “Future Directions and Challenges” examines significant questions for future research.

What Is Financial Strain?

The common thread in this literature is that families that are similar in their income, wealth, and education may still differ substantially in their socio-economic status due to other factors affecting their financial position such as debt burden or emergency fund availability. Where research studies differ is in how to classify and measure this phenomenon. Several terms routinely used in the literature include “financial strain” (Grafova, 2011; Zimmerman & Katon, 2005), “financial hardship” (Averett & Smith, 2014; Butterworth, Rodgers, & Windsor, 2009), and “financial stress” (Garasky, Stewart, Gundersen, Lohman, & Eisenmann, 2009; Serido, Lawry, Li, Conger, & Russell, 2014).

There are three main approaches to measuring financial strain found in the research literature, with each capturing slightly different aspects of financial strain: debt, emergency fund availability, and inability to meet current financial obligations (see Table 1). While these approaches are related they still capture different aspects of the same phenomenon (del Rio & Young, 2008).

Table 1. Frequently Used Measures of Financial Strain

Debt

Emergency Fund Availability

Inability to Meet Current Financial Obligations

Financial insolvency

Low liquidity ratio

Inability to pay bills

Indebtness

Low investment ratio

Utility payment debt

Debt to income ratio

Asset poverty

Mortgage payment arrears

Debt to assets ratio

Rent payments arrears

Debt payments to income ratio

Efforts to increase cash inflow

Efforts to reduce components of consumption

The first approach conceptualizes financial strain in terms of family debt. The studies using this concept mostly focus on highly leveraged families. However, precise definitions used vary. Some authors focus on financial insolvency, defined as a situation where family liabilities exceed family assets (Grafova, 2015; Kim & Lyons, 2008; Lyons & Yilmazer, 2005). Alternatively, indebtness is used. It is defined as total amount of debt (Brown, Taylor, & Wheatley Price, 2005; Drentea & Lavrakas, 2000), the debt to income ratio (Drentea, 2000; Drentea & Lavrakas, 2000), the debt to assets ratio (Zimmerman & Katon, 2005), or as the debt payments to income ratio (Keese & Schmitz, 2014).

The second approach defines financial strain using a concept of emergency fund availability. This approach measures whether families have enough assets to meet their basic needs during temporary hard times. The specific definitions used vary depending on how researchers define each of the following: (a) assets, (b) basic needs, and (c) length of temporary time period (Caner & Wolff, 2004; Grafova, 2007; Haveman & Wolff, 2005; Kim & Lyons, 2008; Lyons & Yilmazer, 2005). Assets are typically defined either as liquid assets or as financial assets. Basic needs are usually defined in terms of either monthly income the family typically receives or in terms of an income poverty threshold. The length of time that families are expected to cover their basic needs varies between three to six months. Emergency fund availability, recognized as an important indicator of financial strain, is a common metric for financial strain in various social science fields. For instance, in consumer economics it is often described using the terms “liquidity ratio” and “investment ratio” (Kim & Lyons, 2008; Lyons & Yilmazer, 2005), while other researchers term it as “asset poverty” (Caner & Wolff, 2004; Haveman & Wolff, 2005).

The third approach conceptualizes financial strain as the inability to meet current financial obligations. The instruments used to measure this concept either reflect the inability to pay bills (Averett & Smith, 2014; Hope, Power, & Rodgers, 1999), having utility payment debt (Hope et al., 1999), or mortgage or rent payments being in arrears (Hope et al., 1999; Taylor, Pevalin, & Todd, 2007). Other approaches are based on family efforts to increase cash inflow, such as selling possessions, cashing life insurance, borrowing from friends and relatives, and reducing various components of consumption, including postponing major purchases, postponing medical care, and reducing spending on recreation (Garasky et al., 2009; Prawitz et al., 2006; Serido et al., 2014).

How Can Financial Strain Affect Health?

There are two main hypotheses explaining how financial strain may affect health. First, financial strain indicates that a lower amount of financial resources are available to individuals. This may have a dual impact on health. On the one hand, lower financial resources may lead to a decrease in the consumption of tobacco (Gallet & List, 2003) and alcohol (Gallet, 2007), and a reduction in diets consisting of fast food (Byrne, Capps, & Saha, 1998). This change in behavior, in turn, may improve a variety of health outcomes. On the other hand, lower financial resources may shift food consumption away from more expensive and healthier food choices toward less expensive and less healthy choices. Lower financial resources may also negatively affect healthcare access, healthcare utilization, and adherence to treatment (Alley et al., 2011), causing a decline in health (Currie & Tekin, 2015).

Second, financial strain may produce greater uncertainty with regard to the availability of financial resources at present as well as in the future, thereby resulting in elevated stress. As a coping and adaptive response to increased stress, individuals are likely to increase smoking, alcohol, and food consumption, including fast food consumption, while decreasing exercise and sleep (Grafova, 2011; Szanton, Gill, & Allen, 2005). Additionally, the biological responses to increased stress through immune, endocrine, and cardiovascular systems tend to result in negative effects on health outcomes (Cohen, Janicki-Deverts, & Miller, 2007; Cohen & Williamson, 1991).

Examining the relationship between financial strain and health is complicated because it appears to be bidirectional. It is not only the case that financial strain may impact health but that health may have an impact on financial strain. For instance, Grafova (2015) finds that the onset of chronic conditions among non-elderly adults increases the likelihood of families becoming financially insolvent. Using a nationally representative sample of older adults, Kim and Lyons (2008) find that existing chronic conditions increase the likelihood of financial insolvency and decrease emergency fund availability. Similarly, they also find that new chronic conditions increase the likelihood of financial insolvency. Babiarz, Widdows, and Yilmazer (2013) show that an adverse health event increases the probability of having non-collateralized debt and also increases the amount of such debt. The onset of a chronic condition or the onset of psychological or mental health problems also increases the amount of non-collateralized debt (Babiarz & Yilmazer, 2017).

Finally, it is possible that a relationship between financial strain and health could, at least in part, be due to common factors, such as unobserved preferences or attitudes that can shape both health outcomes and financial strain. Lower risk aversion, lack of self-control, and hyperbolic discounting may lead to both a greater likelihood of coming under financial strain as well as poorer health outcomes (Averett & Smith, 2014; Grafova, 2007).

Debt and Mental Health

A substantial portion of the research literature examining the relationship between financial strain and health focuses on the impact of debt-related measures of financial strain on mental health outcomes. The adverse effect of debt on mental health has been documented for a variety of outcomes, including anxiety, psychological distress, depression, and anger (Drentea, 2000; Drentea & Reynolds, 2012; Fitch, Simpson, Collard, & Teasdale, 2007; Hojman, Miranda, & Ruiz-Tagle, 2016; Hope et al., 1999; Jacoby, 2002; Jenkins et al., 2008; Keese & Schmitz, 2014; Maclean, Webber, French, & Ettner, 2015; Reading & Reynolds, 2001; Zimmerman & Katon, 2005). It appears that both the type of debt and its size may play a role in shaping the relationship between debt and mental and psychological health-related outcomes.

Non-Collateralized Debt and Mental Health

A number of studies focus on non-collateralized (unsecure) debt and mental health. These studies tend to show a consistent detrimental effect on mental health due to non-collateralized debt. For instance, using a sample of adults from Ohio, Drentea (2000) shows that a higher credit card debt to income ratio is associated with greater anxiety. Similarly, Brown et al. (2005) use the British Household Panel Survey to show that a 10% increase in the level of non-collateralized debt is associated with an average 9.2 percentage point decline in the likelihood of having a high level of psychological well-being. Using the German Socio-Economic Panel, Keese and Schmitz (2014) find that a 10 percentage point increase in consumer debt payments to income ratio is associated with about a 1.5% standard deviation decline in the Mental Component Summary Scale measuring mental health status.

Housing Debt and Mental Health

Researchers also analyzed the relationship between housing debt and mental health-related outcomes. For instance, Keese and Schmitz (2014) find that a 10 percentage point increase in home loan payment to income ratio is associated with about 2.5% standard deviation decline in in the Mental Component Summary Scale. Similarly, Leung and Lau (2017), in their analysis of data from the Health and Retirement Study, reveal that mortgages with high loan to value ratios (defined as a loan to value ratio at or above 80%) are associated, on average, with 0.79–1.18 more depressive symptoms, as measured by the Center for Epidemiological Studies Depression Scale. Taylor et al. (2007) use the British Household Panel Survey to show that being in mortgage arrears is associated with an average increase of 0.629 points in the General Health Questionnaire Scale that assesses minor psychiatric morbidity. In contrast, Brown et al. (2005) find that a higher mortgage payment to income ratio is not associated with psychological well-being. However, most of the studies seem to agree that both non-collateralized and mortgage debt are associated with adverse mental health outcomes.

Debt Burden and Mental Health

Studies also indicate that not only a presence of debt but its size could be important. High debt burden is associated with lower mental health outcomes (Brown et al., 2005, Leung & Lau, 2017; Zimmerman & Katon, 2005). Similarly, persistently high debt burden and increases in debt burden are associated with additional depressive symptoms (Hojman et al., 2016). In contrast, a decrease in debt burden is not associated with additional depressive symptoms (Hojman et al., 2016). This may imply that a high debt burden may have a long-term detrimental impact on mental health.

Debt Burden and Inability to Meet Current Financial Obligations

A high debt burden may lead to an inability to meet current financial obligations. In the case of mortgage debt it may cause mortgage delinquency. In turn, mortgage delinquency may lead to foreclosure and home repossession. There are a number of studies exploring the effect of mortgage delinquency and foreclosure on mental health. These studies consistently show an adverse impact on various mental health outcomes, including anxiety (Burgard, Seefeldt, & Zelner, 2012), depression (Alley et al., 2011; McLaughlin et al., 2012), and minor psychiatric disorders (Pevalin, 2009).

Specifically, Burgard et al. (2012) find that those who report being behind on mortgage payments at the time of an interview had higher odds of reporting having had an anxiety attack in the previous four weeks (OR = 3.74) compared to respondents who were not behind mortgage payments. Alley et al. (2011) find that those who had fallen more than two months behind on mortgage payments in the previous two years had higher odds of a new onset of elevated depressive symptoms (OR = 7.86) than their counterparts who did not report mortgage delinquency. Pevalin (2009) shows that those who experience repossession are significantly more likely to report common mental illness (OR = 1.61).

Housing-related financial obligations that families may face are not limited to mortgage payments. Those who rent rather than own their primary home have rental payment obligations. Difficulties paying rent are also associated with lower mental health outcomes (Mason, Baker, Blakely, & Bentley, 2013), including depression (Burgard et al., 2012). Specifically, Mason et al. (2013) use data from Household, Income and Labour Dynamics in Australia Survey to find that spending more than 30% of one’s income on rental payments is associated with a 1.11–1.44 point decline in mental health status as measured by the Mental Component Summary Scale. Burgard et al. (2012) find being behind on rental payments is associated with higher odds of experiencing major or minor depression (OR = 3.66). Moreover, as Australia’s Personality and Total Health (PATH) Through Life Study shows, an inability to meet other types of financial obligations, such as home heating, appears also to be associated with elevated risk (OR = 1.66–2.28) of depression (Butterworth et al., 2009).

Health, Health Behaviors, and Financial Strain

Financial strain has been linked not only to mental health-related outcomes, but also to a variety of other health outcomes, including smoking, obesity, and alcohol use. Moreover, these associations have been found in a number of countries, including the U.S., the U.K. (Brown et al., 2005; Hope et al., 1999), Australia (Butterworth et al., 2009), and Germany (Keese & Schmitz, 2014). I review some of these associations in sections “Obesity” and “Alcohol and Substance Abuse.”

Obesity

The literature exploring the effect of financial strain on obesity is mixed as to whether financial strain causes obesity. For example, Averett and Smith (2014) examine a sample of young adults from the National Longitudinal Survey of Adolescent Health to explore the relationship between body weight and a credit card debt. They use three estimation approaches: ordinary least squares (OLS) regression, propensity score matching, and instrumental variables. All three approaches find no significant causal relationship between credit card debt and obesity for either men or women. However, these three approaches do not show entirely consistent results when focusing on the outcome of being either obese or overweight. It appears that among men OLS regression and propensity score matching indicate that the presence of credit card debt increases the likelihood of excess body weight while the use of instrumental variables shows no statistically significant relationship. Similarly, Keese and Schmitz (2014) explore the relationship between obesity and debt among non-elderly adults. Using OLS regression, they find that a higher consumer debt to income ratio and high consumer debt burden are associated with a higher likelihood of obesity. However, these relationships do not appear to be robust. They become small and insignificant when an individual fixed effects regression is estimated. Several studies indicate that the estimated relationship between non-collateralized consumer debt and obesity is highly sensitive to the choice of statistical estimation technique. One potential explanation is that the associations between debt and obesity are not causal but are driven by third factors, such as time preferences, hyperbolic discounting, and self-control, thereby causing spurious correlation (Grafova, 2007; Komlos, Smith, & Bogin, 2004).

Most of the studies that explore the effect of financial strain on various health outcomes focus on adults. An exception is research that focuses on the relationship between financial strain and childhood obesity. Similar to the literature on adults, it also provides mixed results. For instance, Garasky et al. (2009) examine how childhood obesity is related to a composite 10-unit financial strain scale. This scale includes several factors reflecting family financial stress, such as measures to increase cash inflow (e.g. selling possessions, borrowing from friends and relatives), various measures to reduce components of consumption (e.g. postponed major purchases, postponed medical care), inability to meet current financial obligations (e.g. falling behind in paying bills), and high debt burden (e.g. filing for bankruptcy, property repossession). The authors find that among children 5–11 years of age, greater financial strain is not associated with an increased likelihood of excess weight. However, among those of 12–17 years of age, greater financial strain is associated with a higher likelihood of excess weight.

Burgstahler, Gundersen, and Garasky (2012) examine the relationship between childhood obesity and a financial stress index. The authors utilize data from the Survey of Household Finances and Childhood Obesity, which focused on families residing in low income counties in three Midwestern states: Illinois, Iowa, and Michigan. The financial stress index examined whether during the previous 12 months respondents were late paying their utility or phone bill(s), ever missed a credit card or other loan payment by 60 days or more, ever been late on a mortgage or rent payment by 30 days or more, used a payday loan or other high interest rate loan, had to sell property or possessions to pay their bills, or postponed medical or dental care because they could not afford it. The authors found no significant relationship between childhood obesity and family financial stress.

As discussed, one of the indicators of financial strain is the inability to meet current financial obligations. The financial strain and childhood obesity literature primarily focuses on one specific indicator of the inability to meet current financial obligations: food insecurity. Food insecurity is characterized by access to adequate food being limited by a lack of money and other resources (Coleman-Jensen, Rabbitt, Gregory, & Singh, 2017). Being in poverty does not necessarily imply food insecurity. For instance, Gundersen and Ribar (2011) document that almost 65% of households with incomes near the poverty line are food secure. There are a number of studies that show that food insecurity and childhood obesity coexist (Eisenmann, Gundersen, Lohman, Garasky, & Stewart, 2011). However whether these associations are causal and whether they could also be due to non-random selection is intensely debated (Gundersen, Kreider, & Pepper, 2011).

For instance, Millimet and Roy (2015) are unable to rule out the possibility of no causal relationship between food insecurity and obesity in the absence of a very strong assumption of non-random selection and lack of food insecurity misclassification error. Similarly, Gundersen and Kreider (2009) use non-parametric bounding methods to analyze the relationship between food insecurity and childhood obesity. They are unable to rule out the possibility of no causal relationship between food insecurity and obesity in the absence of a monotone treatment response, the monotone treatment selection, and monotone instrumental variable assumptions (Manski & Pepper, 2000). Furthermore, Kuku, Garasky, and Gundersen (2012) find no significant association between food insecurity and childhood obesity when using probit regression analysis. When a non-parametric approach of locally weighted scatterplot smoothing is applied, the authors find that a higher level of food insecurity is associated with a higher likelihood of childhood obesity.

Alcohol and Substance Abuse

Despite a known association between financial instability and alcohol-related problems, the research examining the effect of financial strain on alcohol behavior is limited (Peirce, Frone, Russell, & Cooper, 1996). There are several exceptions. Serido et al. (2014) show that an inability to meet current financial obligations is associated with increased alcohol use, increased heavy drinking, and increased problem drinking. Moreover, an inability to meet current financial obligations increases prospective problem drinking.

Burgard et al. (2012) finds that being behind on mortgage payments or being in foreclosure does not seem to impact the likelihood of harmful drinking. Maclean, Webber, and French (2015) concentrate on the entire spectrum of mental health and substance use disorders. They find that having experienced a major financial crisis, declaring bankruptcy, or more than once being unable to meet mortgage payments is related to a higher likelihood of substance abuse. Moreover, the estimated effects are robust to adding individual fixed effects into the regression models and cannot be fully explained by reverse causality.

Financial Strain and Economic Shocks

Financial strain and economic shocks are closely related. On the one hand, a negative economic shock, such as loss of income or employment, may result in financial strain due to an increased debt burden and the inability to meet current financial obligations. On the other hand, financially strained families who lack emergency funds or have a high debt burden are more vulnerable to negative economic shocks. Negative economic shocks are likely to further exacerbate the strain experienced by such families.

There is a substantial economic literature devoted to the effect of a particular negative economic shock, namely unemployment, on health outcomes.1 Due to the space limitation not all of these articles could be included in this article. One result that appears to be strongest and the most consistent throughout this literature is that unemployment has a detrimental effect on a variety of mental health outcomes, including depressive symptoms, neurosis, and psychological distress (Charles & Decicca, 2008; Gallo, Bradley, Siegel, & Kasl, 2000; Gallo et al., 2006; Ruhm, 2003). Since unemployment can lead to financial strain, this result is consistent with literature that finds evidence that financial strain has an adverse effect on various mental health outcomes.

Similar to the financial strain literature, the literature on the health effects of unemployment shows that joblessness has ambiguous impact on health behaviors. For instance, Barnes Michael and Smith Trenton (2009) and Falba, Mei Teng, Sindelar, and Gallo (2005) find that unemployment is related to a higher probability of continued smoking, a higher probability of smoking relapse, and increased smoking intensity, while Ruhm (2000, 2005) finds that unemployment is related to reduced smoking prevalence. Grafova and Monheit (2017) find that while the initial impact of unemployment on smoking could be neutral or favorable, longer unemployment spells have an adverse effect on smoking. Charles and Decicca (2008) also find that the effect of unemployment on smoking is ambiguous: An increase in the local unemployment rate is likely to increase smoking behavior among those least likely to be employed and to reduce smoking for those in the highest employment deciles. Similarly, while some researchers find that unemployment is associated with an increased prevalence of obesity or weight gain among individuals, and more likelihood of binge drinking, it has no effect on favorable health behaviors such as exercising (Charles & Decicca, 2008). By contrast, other researchers find unemployment is associated with a reduced prevalence of obesity (Ruhm, 2005), reduced drinking (Ruhm & Black, 2002), and reduced physical inactivity (Ruhm, 2005).

Future Directions and Challenges

The research on the health effects of financial strain is part of broader research literature on socio-economic differences in health. As discussed, it is closely connected to the stream of research on health effects of economic shocks. Furthermore, the health and financial strain literature cuts across several disciplines, including economics, finance, sociology, and public health. Several common themes emerge from this literature. The term “financial strain” encompasses a broad range of economic and financial risks. The measurement of financial strain may follow different paths in terms of what is actually measured. Some approaches quantify specific risks, such as lack of emergency funds or the presence of a debt burden, while others measure financial strain based upon the consequences when specific risks materialize, such as the inability to meet current financial obligations. Most studies are devoted to one specific attribute of financial strain and there have been relatively few attempts to combine comprehensive information about the health effects of financial strain. For instance, far less is known about the effect that lack of emergency funds has on health than about the effect that debt has on health. We need comprehensive information about the effect of all (not just some) attributes of financial strain on health.

Additionally, most of the existing research focuses on mental health outcomes and health behaviors. Relatively little is known about the effect of financial strain on physical health. For instance, several studies find that financial strain does not appear to be related to self-reported health (Burgard et al., 2012; Leung & Lau, 2017; Yilmazer, Babiarz, & Liu, 2015) but may potentially affect other physical health outcomes, such as physical impairment (Drentea & Lavrakas, 2000) and hypertension (Leung & Lau, 2017). More studies in this area are needed because the results are inconclusive (Leung & Lau, 2017; Yilmazer et al., 2015). Similarly, more research is needed on the impact of financial strain on medical treatment adherence and healthcare utilization (Alley et al., 2011; Currie & Tekin, 2015).

Another limitation of existing research is that it mostly focuses on adult health outcomes. There are few attempts to explore how the relationship between financial strain and health varies by age (Kim & Lyons, 2008; Leung & Lau, 2017), gender (Taylor et al., 2007), or education level. Similarly, very little is known about the effect of financial strain on the health of children and adolescents. There are a few notable exceptions. Garasky et al. (2009) show that financial strain is associated with obesity among adolescents. Serido et al. (2014) analyzes the impact of an inability to meet current financial obligations on the alcohol consumption of young adults. Averett and Smith (2014) examine how credit card debt and trouble paying bills are related to obesity among young adults. Financial strain may have a substantial impact on children and adolescents. First, financial strain may adversely affect parenting style (Mayhew & Lempers, 1998; Skinner, Elder, & Conger, 1992). For instance, under the influence of financial strain, parents could become less supportive and more irritable. The negative change in parenting style may affect the health and psychological well-being of children and adolescents either directly or indirectly by imposing additional stress and frustration on them (Dooley & Stewart, 2007). Second, financial strain may lead to the inability of families to purchase needed goods and services. These economic problems may adversely affect the health and behaviors of children and adolescents (Agnew, Matthews, Bucher, Welcher, & Keyes, 2008). Studies of the effect of financial strain on the outcomes of children and adolescents help us to understand the pathways through which the health–financial strain gradient develops. Moreover, these studies may have important implications for research focusing on intra-family resource allocation.

Another aspect that appears to be missing in the debate surrounding financial strain is the impact of long-term exposure. Studies tend to focus on concurrent measures of financial strain. Yet the literature on poverty documents that temporal and longitudinal exposure to socio-economic disadvantage may differ substantially (Jackson & Mare, 2007) and that cumulative exposure could be very important (Johnson Rucker, 2012). Thus, the effects of long-term exposure to financial strain could be an informative direction for future researchers.

Finally, close attention should be paid to the significant issue of causality. For instance, there are an overwhelming number of studies linking various indicators of financial strain to poor mental health outcomes. However, much of this research establishes relationships that could be interpreted as causal, albeit with a great degree of caution. Methodological challenges to causality in the area of research examining how financial strain and health are related could be substantial. For instance, as discussed, multiple studies that focus on health behavior outcomes such as obesity find that results are highly sensitive to the statistical approach chosen. Establishing causality in the relationship between financial strain and smoking could be very important for policy implications as many safety net programs are means-tested. In practice, this often implies that eligibility is based on family income. Research on the impact of financial strain may potentially inform public policy about new ways to shape means-tested programs.

Further Reading

Currie, J., & Tekin, E. (2015). Is there a link between foreclosure and health? American Economic Journal: Economic Policy, 7(1), 63–94.Find this resource:

Drentea, P., & Lavrakas, P. J. (2000). Over the limit: The association among health, race and debt. Social Science & Medicine, 50(4), 517–529.Find this resource:

Lyons, A. C., & Yilmazer, T. (2005). Health and financial strain: Evidence from the Survey of Consumer Finances. Southern Economic Journal, 71(4), 873–890.Find this resource:

Ruhm, C. J. (2000). Are recessions good for your health? Quarterly Journal of Economics, 115(2), 617–650.Find this resource:

Zimmerman, F. J., & Katon, W. (2005). Socioeconomic status, depression disparities, and financial strain: What lies behind the income-depression relationship? Health Economics, 14(12), 1197–1215.Find this resource:

References

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Apouey, B., & Clark, A. E. (2015). Winning big but feeling no better? The effect of lottery prizes on physical and mental health. Health Economics, 24(5), 516–538.Find this resource:

Averett, S. L., & Smith, J. K. (2014). Financial hardship and obesity. Economics and Human Biology, 15, 201–212.Find this resource:

Babiarz, P., Widdows, R., & Yilmazer, T. (2013). Borrowing to cope with adverse health events: Liquidity constraints, insurance coverage, and unsecured debt. Health Economics, 22(10), 1177–1198.Find this resource:

Babiarz, P., & Yilmazer, T. (2017). The impact of adverse health events on consumption: Understanding the mediating effect of income transfers, wealth, and health insurance. Health Economics, 26(12), 1743–1758.Find this resource:

Barnes Michael, G., & Smith Trenton, G. (2009). Tobacco use as response to economic insecurity: Evidence from the National Longitudinal Survey of Youth. B.E. Journal of Economic Analysis & Policy, 9(1), 1–9.Find this resource:

Bricker, J., Dettling, L. J., Henriques, A., Hsu, J. W., Jacobs, L., Moore, K. B., . . . Windle, R. A. (2017). Changes in U.S. family finances from 2013 to 2016: Evidence from the Survey of Consumer Finances. Federal Reserve Bulletin, 103(3).Find this resource:

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Notes:

(1.) The studies focusing on income shocks mostly focus on positive income changes, such as lottery wins or Social Security Notch (Apouey & Clark, 2015; Gardner & Oswald, 2007; Lindahl, 2005; Snyder & Evans, 2006). Similarly, most of the studies on health consequences of wealth shocks are devoted to positive wealth shocks, such as inheritance, home price appreciation, or stock market gains (Hamoudi & Dowd, 2013; Kim & Ruhm, 2012; Meer, Miller, & Rosen, 2003; Michaud & van Soest, 2008; Schwandt, forthcoming; Smith, 2007).