CORNELL (US)—The way many workers manage their retirement assets may ignore the effects of mental health disorders or substance abuse problems on investment decisions, according to new research.
One out of three households in the United States has at least one person diagnosed with a mental health disorder. Those individuals hold a greater percentage of their assets in bonds or cash, demonstrating a pattern of risk aversion when making financial decisions.
The researchers began by exploring “general tendencies and patterns in investments and health,” explains Vicki Bogan, assistant professor of applied economics and management at Cornell University.
While physical health impacts have been studied, the effect of mental health on economic decision-making has been “an interesting and unexplored area in the literature,” she says.
“The most prevalent diagnosis is depression, and there has been some research linking depression with taking less risk, and work linking Seasonal Affective Disorder with financial market activity,” she explains.
In addition to households affected by mental illness decreasing investments in risky instruments, Bogan discovered “that single women diagnosed with a psychological disorder significantly increase their share of financial assets devoted to safe investments and have an increased probability of holding safe assets.”
Mental health issues can adversely effect “an individual’s motivation to invest for future returns,” Bogan says.
Physical or mental health issues also reduce productivity and earnings while increasing medical spending, “thereby reducing the availability of funds to invest; it may also cause a household to change its portfolio allocation toward more liquid assets.
“Historically, portfolio choices of stock have been vital to economic advancement and wealth building, particularly during prosperous economic times,” Bogan says.
Bogan says people who focus too much on safe investments could put themselves at an economic disadvantage.
“It begs further research,” Bogan explains. “We know that stockholding and making investments has been a key to long-term wealth-building. And for those not taking the appropriate levels of risk for their portfolio, it could have long-term effects on their financial situation.”
Researchers at the University of Georgia contributed to the study.
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