A growing body of research links health status and household financial decisions within the nuclear family unit. Such a focus on the nuclear family could underestimate the full extent of health-related issues on household financial well-being. Previous research finds that household wealth can decline by tens of thousands of dollars when a sibling experiences a physical health issue (Heflin and Chiteji 2014).
In a new paper by Jermaine Toney and Vicki L. Bogan (Cornell University), the authors expand upon current economic modeling to include a focus on the extended family. They hypothesize that mental health issues outside of the nuclear family unit are a unique contributor to household portfolio allocation decisions and analyze the extensive margin of risky asset ownership, the intensive margin of risky asset ownership, and the absolute amount of risky asset holding.
Having risky assets in a household’s portfolio represents an important route to wealth building. Extended family health issues, however, may impose a constraint on risky asset ownership and by extension wealth accumulation. The sympathy and care for family members may be part of the humbler department of households, but households must acknowledge the constraint of extended family health issues on risky asset market participation. Understanding inter-household family connections, and how they relate to personal household finance decisions, can help to shed light on contemporary forces driving wealth accumulation.
In considering policy implications, the authors suggest a need to strengthen the safety net that covers mental health issues. For example, expanding access to mental health coverage through insurance plans would likely improve mental health treatment for individuals with psychological distress. Such improvement also could reduce the financial burden that is being incurred by focal (eldest) siblings, and broaden stock market participation.
Toney, J., Bogan, V.L. How Extended Family Mental Health Issues Influence Household Portfolio Allocations. Rev Econ Household (2023). https://doi.org/10.1007/s11150-023-09666-6
