Poor Health as a Precursor to Consumer Debt Distress in South Africa

Abstract

While it is well documented that severe consumer indebtedness can lead to mental and physical health problems including unhealthy coping mechanisms, the pathways from poor health to financial strain is still an understudied area. Using the National Income Dynamics Study (NIDS) data, this study examines the relationship between poor health and debt distress while controlling for the possible endogeneity between these two conditions and some health-related variables. The results indicate that poor health significantly increases the probability of financial strain. Insofar as poor health is associated with catastrophic healthcare costs and income deprivation, for instance through inability to work, other factors affecting health such as socioeconomic status and insurance might shape the contours of consumers' debt performances in the face of health risk. Ultimately, health may be creating a vicious circle in which poor health affects the capacity to earn income and accumulate assets,...