7  Conclusions

This paper has examined the relationship between net wealth and health. Net wealth was modelled as a function of health with the inclusion of a range of control variables. Across a range of health measures it found a fairly clear association, with net wealth tending to be lower for individuals with poorer health.

Results using separate measures of physical and mental wellbeing showed both to be associated with lower net wealth. An individual with moderate physical discomfort was estimated to have $11,330 less wealth than an individual with only low physical discomfort, holding other factors constant at their mean values. This difference was larger for an individual with high physical discomfort who was estimated to have $12,890 less wealth. For mental health, a mean individual with moderate distress had an estimated $5,330 less net wealth than the same individual with low distress. The difference between high and low distress was $28,850 less net wealth.

The measures of physical and mental wellbeing were decomposed by whether the respondent had experienced a short-term health failure, defined as responding “yes” to having an illness or injury, which hindered their normal activities, lasting at least seven days in the previous 12 months. The results showed that the marginal effect of ill health on wealth for those who suffered a health failure was more negative than for those who did not suffer a health failure. Further investigation revealed that those who did not suffer from health failures had, on average, better self-rated health and greater wealth.

Respondent self-rated health was significant in almost all analyses. Self-rated health was used in order to provide a wider perspective of a person's wellbeing than targeted questioning alone. Respondents were asked to rate their health as excellent, very good, good, fair or poor. The worse a respondent rated their health, the progressively lower their wealth. A person with average characteristics who rated their health very good was estimated to have $11,400 less net wealth than a person with the same characteristics who rated their health excellent. The difference between good and excellent health was $25,760, between fair and excellent health was $35,500 and between poor and excellent health was $53,000.

Eight chronic conditions were considered: asthma, high blood pressure, high cholesterol, heart disease, diabetes, stroke, migraines and the presence of either depression or schizophrenia. Of these, heart disease, diabetes, stroke and the presence of either depression or schizophrenia had the greatest marginal effects on wealth[22]. Those with these conditions had $10,930 to $19,150 lower net wealth, at the mean, than those who did not. Owing to a lack of independence between the conditions, and the small number of respondents with multiple conditions, the effects were all measured separately.

The marginal effects of the six statistically significant chronic conditions were weighted by prevalence of the condition in the longitudinal population. The magnitude of the marginal effects for heart disease and diabetes were reduced to similar levels of effect, per head of population, as high cholesterol and migraines, about $600 per person. The presence of depression or schizophrenia had twice the effect per head of population with a predicted cost of $1,380.

The chronic conditions were decomposed by whether the respondent had been diagnosed within the last five years, or more than five years ago. The variable for depression or schizophrenia was not able to be decomposed in this way. Asthma has a statistically greater effect on net wealth in the first five years. Diabetes and heart disease were the only conditions that were significant regardless of how long since diagnosis.

Net wealth was decomposed into assets and liabilities. Models were estimated for assets and liabilities separately using the same control variables as were used in the regression models for net wealth. From this, the majority of the lower net wealth associated with ill health appears to be the result of lower total assets with total liabilities remaining reasonably constant.

A logistic model was estimated for the probability of having negative net wealth. The likelihood of having negative net wealth was found to increase as self-rated health decreased, and to be higher for those with high psychological distress compared to those with lower psychological distress. Four of the chronic conditions were found to have significant association with a higher likelihood of negative net wealth: high cholesterol, heart disease, migraines and depression or schizophrenia. No relationship with physical health was found.

A logistic model for the probability of having liabilities was also estimated. It was found that mental wellbeing and the levels of self-rated health were largely not significant in determining whether a respondent has liabilities or not. But high physical discomfort and being diagnosed with a chronic condition, other than stroke, was found to increase the likelihood of having liabilities. Of these, migraines had the greatest percentage point effect. However this was dwarfed by the control variables, which frequently had more than twice the percentage point effect.

This analysis is only able to detect the association between health and wealth; identifying the direction of causality is not possible given the techniques used. There is the potential for health to affect wealth and for wealth to affect health. It is also difficult to be certain that the relationship detected is not owing to unobserved variables having an effect on both health and wealth. Untangling the complex relationship between health and wealth remains an area for future research. The longitudinal nature of SoFIE will eventually enable more complex modelling techniques to be applied to the data.

Despite not resolving the question of causality, this paper does provide evidence that those with poor health tend to be financially worse off. Those with ill health may have lower wealth owing to a variety of reasons, including the cost of treatment, reduced earnings and higher cost of living. How much of the cost to treat ill health is borne by those who suffer from ill health will influence the apparent magnitude of this relationship.

As with any study of this nature, the robustness of the results reflects in part the quality of the data and inevitably there will be errors of measurement in the data. The reporting of assets and liabilities relies on recall by the respondents, and some items may have been overlooked. Furthermore, it is recognised that very high net wealth individuals may not be proportionately represented in SoFIE. While self-reported health status has been widely used, there exists the potential for bias in reporting if the respondents have a perception that in responding to an official survey their present benefits might be in jeopardy.

A potential by-product from public investment in improving the health of an individual could be higher levels of net wealth. Typically those with better health status tend to have greater productivity, higher incomes and longer working lives, all of which provide an opportunity to accumulate greater net wealth. However, the impact of the taxes needed to fund such investment and the labour force participation rates of those targeted would need to be considered before affirming that such investment would have net positive benefits.

An implication of having benefits that are asset tested against net wealth is that those with poor health will have a tendency to be overrepresented among recipients. So it is expected that a greater proportion of those receiving a benefit will have ill health, compared to the proportion of the total population with ill health.