Abstract
<p>Using the Survey of Health, Ageing, and Retirement in Europe (SHARE), this study investigated how health is associated with households’ portfolio choices in 10 European countries. This study reports three important findings on the relationship between health and portfolio choices. First, households in poor health condition are less likely than households in good health to own various types of financial and non-financial assets. Second, households in poor health condition tend to allocate a lower share of their wealth to risky financial assets, savings for long-term investment, their principal residence, and other non-financial assets while they allocate a larger share to liquid assets such as bank deposits. Third, there exists a regional variation in the magnitude of the correlation between health and portfolio choices. This regional variation can be explained by differences in health care systems. Overall, these findings suggest that negative health shocks are significantly associated with a household’s portfolio choices.</p>
Highlights
An aging population creates various social and economic challenges, such as a prevalence of physical health problems among the elderly and an increase in medical expenditures
This paper aims to examine how health of elderly household is associated with their household portfolio choices
This study aims to fill this gap in the literature by providing new empirical evidence on the relationship between health and household portfolio choice outside the U.S Similar to Atella et al (2012), which is the first empirical research on the effect of health shocks on household portfolio choices outside the U.S, this study uses the Survey of Health, Ageing, and Retirement in Europe (SHARE) data set to examine the relationship between health and household portfolio choices in European countries
Summary
An aging population creates various social and economic challenges, such as a prevalence of physical health problems among the elderly and an increase in medical expenditures. According to a recent report (Mackenbach et al, 2005), around 40 percent of the population aged 50 or above in Europe experienced limitations in daily activities, almost 50 percent of them reported having some long-term health problems, and more than 60 percent were diagnosed with at least one chronic medical condition (Note 1). The incidence of negative health shocks could influence a household’s portfolio choices by increasing its background risk (Note 2). Health problems often incur medical expenditures (Goldman & Maestas, 2013), and the probability of an unexpected increase in medical expenditures is higher among elderly households. This paper aims to examine how health of elderly household is associated with their household portfolio choices
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