Do adverse health shocks induce myopic financial planning?

Abstract

Health and financial planning have both been found to be crucial to long-term financial stability. However, the impact of a health shock on financial planning horizon was not directly tested. This article traces the trajectories of the financial planning horizon before and after the occurrence of work-limiting health shocks, using longitudinal panel data from the Health and Retirement Study. Results show that, during the 10 years following a health shock, individuals are 20 to 39% more likely to focus on the near term (i.e., the next few months) than baseline levels. Moreover, people with lower socioeconomic status or poor general health are more prone to switching to myopic planning after a health shock.