Health-behavior link: The impact of health shocks on asset allocation and consumption in older households

This study investigates the impact of health shocks on household asset allocation and consumption behavior of households aged over 45, combining theoretical modeling and empirical analysis using data from the 2011–2018 China Health and Retirement Longitudinal Study (CHARLS). The theoretical model identifies heightened health risks and medical expenses as the primary channels through which health shocks affect financial decisions. Empirical findings validate these theoretical predictions, showing that health shocks significantly reduce households’ risky assets, housing investments, and daily consumption. Additionally, chronic diseases exert a stronger influence on consumption due to their long-term treatment costs, while mental health conditions have a more pronounced effect on investment decisions by impairing cognitive ability. Mechanism analysis further shows that rising healthcare costs and future health risks prompt households to adopt more conservative financial strategies and increase liquidity. These findings underscore the need for robust healthcare and emerging technologies to mitigate the impact of health shocks and managing health risks.