Debt trajectories and mental health
(Disponible solo en inglés:) In the last few decades, there was a marked increase in consumer debt in the United States, Latin America and other emerging countries, spurring a debate about the real costs and benefits of household credit. Using a unique longitudinal dataset with detailed health and balance sheet information from a large sample of 10,900 Chilean households we study the relationship between debt trajectories in a three-year time window and mental health. We find that depressive symptoms are higher for those who have been persistently over-indebted, followed by those who transit from moderate to high debt levels. We also find that those who transition from over-indebtedness to moderate debt levels have no additional depressive symptoms compared to those with trajectories of moderate debt throughout (never over-indebted). This suggests that the debt-related contribution to depressive symptoms vanishes as debt levels fall. The association between debt and depressive symptoms seems to be driven by non-mortgage debt -primarily consumer credit- or late mortgage payments; secured debt (secured by collateral) per se is not associated with depressive symptoms. Policy interventions to reduce the negative association of over-indebtedness on mental health are discussed.
In the last few decades, large segments of the world population have increased their access to credit. In the United States, between 1983 and 2007, the household median debt to income ratio nearly quadrupled, and lower to middle-income households gained access to mortgages and consumption credit. The median debt service to income ratio among all households rose from 5% in 1983 to 13% in 2007; the share of households with debt service obligations that exceeded 40% of income rose from 4% in 1983 to 11% in 2007 Dynan (2009). In Latin America and other emerging countries, the rise of the new middle classes and poverty exit by millions of people over the last decade is a remarkable social change that has also been accompanied by a massive rise of credit uptake. The growth of household debt in the last fifteen years is common to Latin America and emerging countries (IMF (2006), chapter 2). In Brazil, for example, debt service to income increased from 16% in 2005 to 36% in 2011 IMF (2013). Colombia and Chile show similar growth rates in the last decade.
Hojman, D.; Miranda, A.; Ruiz-Tagle, J. (2016). Debt trajectories and mental health. Social Science & Medicine, 167, 54-62. http://dx.doi.org/10.1016/j.socscimed.2016.08.027