Saturday, October 13, 2018

Wealth Shock and Increased Mortality

With the SEC considering how to raise the standards for investment advice, it's important to realize that more is at stake than just money.  If a retirement investor takes a large loss because of bad financial advice, the aftermath can be deadly.  A study recently published in the Journal of the American Medical association examined the impact of wealth shock on mortality.   Compared to persons that didn't experience wealth shock, the persons that experienced wealth shock faced significantly higher mortality rates:

In a nationally representative sample of US adults aged 51 years or older, more than 25% of individuals experienced a negative wealth shock of 75% or more during a 20-year follow-up period, from 1994 through 2014. A negative wealth shock was associated with an HR of 1.50, a risk that was only slightly smaller than the risk associated with asset poverty, an established social determinant of mortality. Furthermore, the association between negative wealth shocks and mortality did not differ by initial levels of net worth; thus, wealth shock may represent a potential risk factor for mortality across the socioeconomic spectrum.

The wealth shock research is consistent with the FINRA Foundation's finding that financial fraud can lead to depression and other negative health effects.  Wealth shocks might lead to increased mortality because the stress and anxiety associated with the loss drive negative health consequences.  It may also change the decisions people make.  Many people might put off or avoid medical care after losing wealth because of the high prices. 

Getting quality investor protection rules matters.  If better financial advice can reduce the likelihood of wealth shock, it'll save lives. 

To be sure, investment fraud and bad financial advice isn't the only possible cause for wealth shock.  The authors recognized that our costly medical system that often sticks patients with surprising and stunning bills may also be to blame:

Furthermore, because medical expenses from major illness can be a primary trigger of negative wealth shock in middle-aged and older adults,it can be difficult to disentangle the effect of negative wealth shocks on subsequent health outcomes from the effect of the medical illness itself.

Special thanks to Dr. Robert Roush and Debra Speyer for helping bring this study more attention.  We served on a panel together at the Public Investors Arbitration Bar Association's Annual Meeting.

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What do the data show for the under 51 age cohort? Without that data, conclusions are of limited utility, I think. As my single anecdotal data point, I would have been greatly more troubled if, when I had three children in expensive colleges, beginning at age 45, my portfolio had gone straight and stayed put. Now, at 70, I can cope.

Posted by: Craig Sparks | Oct 14, 2018 5:22:09 PM

Although the study didn't capture that information, I suspect that the impact would be much smaller--mostly because people in that age range have much lower mortality rates overall.

Posted by: Ben Edwards | Oct 14, 2018 6:51:27 PM

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