Your Money or Your Life: Managing Health, Managing Money

Using the Panel Study of Income Dynamics, this paper examines the relationship between non-collateralized debt (NCD) and health behaviors. The results reveal that households whose members tend to lead less healthy lifestyles are more likely to hold NCD. Obesity of either spouse is associated with about 7 percentage point increase in the probability of holding NCD. Similarly, wife’s smoking is associated with a 4 percentage point increase in the probability of holding NCD. There are three possible underlying hypotheses that may explain these relationships: common factors, such as preferences, shaping both debt and poorer health behaviors; poorer health and health behaviors causing debt; and debt causing poorer health behaviors. Our findings are not consistent with a causal relationship between health behaviors and NCD. It is likely that other factors, such as time preferences, risk aversion and self-control may underlie the observed correlation.