Bad Debt Is Bad For Your Health

by: The Federal Reserve Bank of Atlanta

By Laura Argys, professor of economics and associate dean for research and creative activities at the University of Colorado, Denver; Andrew Friedson, assistant professor in the economics department at the University of Colorado, Denver; and Melinda Pitts, director, Center for Human Capital Studies at the Atlanta Fed

The amount of debt held by U.S. households grew steadily during the 2000s, with some leveling off after the recession. However, the level of debt remains elevated relative to the turn of the century, a fact easily seen by examining changes in debt held by individuals from 2000 to 2015 (the blue line in the chart below).

Not only is the amount of debt elevated for U.S. households, but the proportion of delinquent household debt has also fluctuated significantly, as the red line in the above chart depicts.

The amount of debt that is severely delinquent (90 days or more past due) peaked during the last recession and remains above pre-recession levels. The Federal Reserve Bank of New York reports these measures of financial health quarterly.

In a recent working paper, we demonstrate a potential causal link between these fluctuations in delinquency and mortality. (A recent Atlanta Fed podcast episode also discussed our findings.) By isolating unanticipated variations in debt and delinquency not caused by worsening health, we show that carrying debt - and delinquent debt in particular - has an adverse effect on mortality rates.

Our results suggest that the decline in the quality of debt portfolios during the Great Recession was associated with an additional 5.7 deaths per 100,000 people, or just over 12,000 additional deaths each year during the worst part of the recession (a calculation based on census population estimates found here). To put this rate in perspective, in 2014, the death rate from homicides was 5.0 per 100,000 people, and motor vehicle accidents caused 10.7 deaths per 100,000 people.

It is well understood that an individual experiencing a large and unexpected decline in health can encounter financial difficulties, and that this sort of event is a major cause of personal bankruptcy. Our findings suggest that significant unexpected financial problems can themselves lead to worse health outcomes. This link between delinquent debt and health outcomes provides more reason for public policy discussions to take seriously the nexus between financial well-being and public health.