The Institute of Consumer Money Management (ICMM), a nonprofit public charity organization based in North Carolina, recently funded a study to examine the link between physical and mental health and financial well-being in the United States. The study was conducted by a team of economists at Montana State University and has resulted in a new literature review titled “Literature Review on the Effect of Physical and Mental Health on Financial Well-Being.”
The comprehensive review draws on a wide range of disciplines, including economics, public health, law, medicine, psychology, public policy, and sociology, to shed light on the complex interplay between physical and mental health and financial well-being. The findings of the literature review highlight the negative impacts of declining physical health, new health conditions, and unexpected health shocks on household finances. These health-related issues can lead to unanticipated out-of-pocket health costs, which can deplete household savings and force households to forego necessary consumption. Additionally, reduced earnings due to a health-induced exit from the workforce can further harm household balance sheets.
The review also emphasizes the detrimental effects of mental health conditions on financial health, showing that mental illness reduces both the capacity to work and labor earnings by more than severe physical ailments. The documented financial hardships that follow a decline or shock to one’s physical health in the U.S. context include higher bankruptcy rates, worse credit outcomes, lower subjective financial well-being, and higher rates of home foreclosure.
In light of these findings, the review emphasizes the need for policy interventions that focus on improving mental health at early ages, providing predictable and lower-cost medical care, and supporting households that experience gaps in labor market earnings due to unforeseen illness. The authors also stress the importance of more research to determine how improvements in mental health affect other financial outcomes.
Coauthor Carly Urban noted that falling ill in the U.S. harms household finances, particularly for the most vulnerable households. She stressed that cost transparency and financial-healthcare partnerships could potentially blunt the effects of health shocks on finances. Additionally, coauthor Isaac Swensen pointed out that mental health interventions may have a more impactful effect on household finances than physical health. He emphasized the potential benefits of targeted treatment provision to mitigate some of the long-lasting negative effects on financial well-being.
The full literature review is available for free online and is expected to be of interest to policymakers, researchers, and anyone interested in the complex relationship between physical and mental health and finances. For further information, the authors can be contacted via email at Isaac.swensen@montana.edu and carly.urban@montana.edu.
Overall, the study sheds light on the complex interplay between physical and mental health and financial well-being and underscores the need for policy interventions and further research to address the impact of health on household finances.
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