Spend your health to gain your wealth or spend your wealth to regain your health? The relationship between financial expectations and health investment decisions

Presenter: Matthew Little, Newcastle University

Author: Matthew Little

Co-author(s): Heather Brown, Jing Shen and John Wildman

Avoidable health inequalities are partly the result of socio-economic inequalities. A common example is the positive correlation between income and health. The mechanisms behind this relationship are less well understood. One possible mechanism which has not previously been explored is possible links between expected future wealth and current health. This paper uses data from the British Household Panel Survey Waves 1-18 (1991-2008) to identify relationships between subjective financial expectations and health investment decisions. Financial expectations are measured using the survey question on whether participants expected their financial position for the coming year to get 1) better; 2) worse; or 3) remain about the same. Health is measured using health investment decisions specifically the number of GP visits in the last year and whether the individual currently smokes. The analysis employs a random effects generalised least squares and fixed effects framework to test for potential endogeneity bias stemming from omitted variable bias. The results indicate the expectation responses are correlated with both current smoking status and the number of GP visits. An expected worse financial situation next year is associated with an increased likelihood to visit a GP on multiple occasions for men and women as well as a reduced likelihood to smoke for women. The results are robust after controlling for marital status, employment status, education, household size and income, age, gender, geographical region and time effects. The findings show financial expectations influence health investment decisions. This may partly explain countercyclical patterns observed in macroeconomic data between health and wealth.