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No Pain, No Strain: Impact of Health on the Financial Security of Older Americans

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  • Angela Lyons
  • Hyungsoo Kim
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    Abstract

    This study uses data from the 2002 and 2004 Health and Retirement Study to investigate the impact that health problems have on the financial strain of older Americans. Two-stage probit models are estimated for a series of financial ratio guidelines that take into account household solvency, liquidity, and investment asset accumulation. We test our models using a subjective measure of self-reported health status and two objective measures of health that control for the severity of specific health conditions. The results show that health problems significantly increase the likelihood of financial strain for older individuals, and the magnitudes of the effects vary by the type of financial strain and how health status is defined. Those most likely to experience some type of financial strain are those with severe chronic conditions. The results provide insight into the future financial security of older Americans and have important implications for health policy and research.

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    File URL: http://indstate.edu/business/NFI/leadership/papers/2007-WP-12_Lyons-Kim.pdf
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    Bibliographic Info

    Paper provided by Indiana State University, Scott College of Business, Networks Financial Institute in its series NFI Working Papers with number 2007-WP-12.

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    Length: 39 pages
    Date of creation: Apr 2007
    Date of revision:
    Handle: RePEc:nfi:nfiwps:2007-wp-12

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    1. DeVaney, Sharon A. & Lytton, Ruth H., 1995. "Household insolvency: A review of household debt repayment, delinquency, and bankruptcy," Financial Services Review, Elsevier, Elsevier, vol. 4(2), pages 137-156.
    2. Angela C. Lyons & Tansel Yilmazer, 2005. "Health and Financial Strain: Evidence from the Survey of Consumer Finances," Southern Economic Journal, Southern Economic Association, Southern Economic Association, vol. 71(4), pages 873-890, April.
    3. Jonathan Meer & Douglas L. Miller & Harvey S. Rosen, 2003. "Exploring the Health-Wealth Nexus," NBER Working Papers 9554, National Bureau of Economic Research, Inc.
    4. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(2), pages 145-166, Spring.
    5. Nandinee Kutty, 1999. "Demand for home modifications: a household production function approach," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 31(10), pages 1273-1281.
    6. Adams, Peter & Hurd, Michael D. & McFadden, Daniel & Merrill, Angela & Ribeiro, Tiago, 2003. "Healthy, wealthy, and wise? Tests for direct causal paths between health and socioeconomic status," Journal of Econometrics, Elsevier, Elsevier, vol. 112(1), pages 3-56, January.
    7. Drentea, Patricia & Lavrakas, Paul J., 2000. "Over the limit: the association among health, race and debt," Social Science & Medicine, Elsevier, Elsevier, vol. 50(4), pages 517-529, February.
    8. Stephen Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 24-85, Wharton School Rodney L. White Center for Financial Research.
    9. Michael Baker & Mark Stabile & Catherine Deri, 2004. "What Do Self-Reported, Objective, Measures of Health Measure?," Journal of Human Resources, University of Wisconsin Press, vol. 39(4).
    10. Lillard, Lee A & Weiss, Yoram, 1997. "Uncertain Health and Survival: Effects on End-of-Life Consumption," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 15(2), pages 254-68, April.
    11. Berkowitz, Michael K. & Qiu, Jiaping, 2006. "A further look at household portfolio choice and health status," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(4), pages 1201-1217, April.
    12. Harvey S. Rosen & Stephen Wu, 2003. "Portfolio Choice and Health Status," NBER Working Papers 9453, National Bureau of Economic Research, Inc.
    13. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 537-79, May.
    14. Jinkook Lee & Hyungsoo Kim, 2003. "An Examination of the Impact of Health on Wealth Depletion in Elderly Individuals," Journals of Gerontology: Series B, Gerontological Society of America, Gerontological Society of America, vol. 58(2), pages S120-S126.
    15. Hurd, Michael D. & McGarry, Kathleen, 1997. "Medical insurance and the use of health care services by the elderly," Journal of Health Economics, Elsevier, Elsevier, vol. 16(2), pages 129-154, April.
    16. Hurd, Michael D, 1990. "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 28(2), pages 565-637, June.
    17. Stephen Wu, 2003. "The Effects of Health Events on the Economic Status of Married Couples," Journal of Human Resources, University of Wisconsin Press, vol. 38(1).
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