How Does Debt Shape Health Outcomes for Older Americans?

Abstract

This study explores the association between debt burdens and health at older ages.  It examines a range of physical and mental health measures and assesses how they may be shaped by the debt held by older adults.  It compares health outcomes for older adults with and without debt.  It also explores whether the amount or type of debt modifies the debt-health nexus.  To address the likely endogeneity of debt and health, the study employs marginal structural models, developed specifically as an identification strategy in the presence of possible endogeneity, alongside population-averaged models that allow us to compare outcomes for populations with and without debt without having to rely on unverifiable assumptions regarding the underlying population distribution, as is the case with random- and fixed-effects models.  Data for this study come primarily from the Health and Retirement Study, and the sample is limited to respondents ages 55 and older from the 1998 through 2016 survey waves.

The paper found that:

• Carrying any debt has a negative effect on a range of health outcomes, including objective and subjective physical and mental health outcomes. The more debt one carries the more detrimental it is for older adults’ health.
• The type of debt matters: while secured debt has a limited, if any, negative impact on health outcomes, unsecured debt has a substantial negative impact on health.
• Although both marginal structural models and population-averaged models consistently show a significantly negative impact of debt on health, the estimated magnitudes are generally somewhat smaller in population-averaged models, arguably providing for a bound of estimates of the debt-health relationship.

 
The policy implications of the findings are:

• Policymakers should consider designing policies that promote the prudent use of debt and discourage carrying large debt burdens, especially unsecured debt, into retirement as this would help promote better health outcomes for older Americans.
• Limiting the use of expensive, primarily unsecured, debt can directly contribute to enhancing private retirement savings, thereby reducing older Americans’ dependency on Social Security benefits as their primary source of retirement security.