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Financially Distressed Consumers: Their Financial Practices, Financial Well-Being, and Health

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This study examined relationships among the financial practices, financial well-being, and health of a sample of 3,121 financially distressed consumers who were new clients participating in the debt management program of a large national non-profit credit counseling organization. Respondents who reported having improved health since participating in credit counseling were more likely than others to engage in positive financial behaviors. For six out of ten financial behaviors, respondents who reported improved health were more likely to report that their finances improved. Implications are provided for financial counselors and educators.
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©2005, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. 73
Financially Distressed Consumers: Their Financial Practices,
Financial Well-being, and Health
Barbara O’Neill
1
, Benoit Sorhaindo
2
, Jing Jian Xiao
,3
,
and E. Thomas Garman
4
This study examined relationships among the financial practices, financial well-being, and health of
a sample of 3,121 financially distressed consumers who were new clients participating in the debt
management program of a large national non-profit credit counseling organization. Respondents
who reported having improved health since participating in credit counseling were more likely than
others to engage in positive financial behaviors. For six out of ten financial behaviors, respondents
who reported improved health were more likely to report that their finances improved. Implications
are provided for financial counselors and educators.
Keywords: Debt repayment, debt problems, financial counseling , financial distress, personal
financial behavior , health and personal finances, financial problems
1
Specialist in Financial Resource Management, Rutgers Cooperative Extension, Cook College Office Building, Room 107,55 Dudley
Road, New Brunswick, NJ 08901, Phone: 732-932-9155 x250, Fax: 732-932-8887 e-mail: oneill@aesop.rutgers.edu
2
Director of Research, InCharge Education Foundation, Inc. 2101 Park Center Dr. Suite 310, Orlando, FL 32835 Phone: 407-532-
5704, Fax: 407-532-5750, e-mail: bsorhain@incharge.org
3
Professor and Director, Take Charge America Institute for Consumer Financial Education and Research, Norton School of Family
and Consumer Sciences, University of Arizona, PO Box 210033, Tucson, AZ 85721, Phone: 520-621-5948, Fax: 520-621-3209, e-
mail: xiao@email.arizona.edu
4
Professor Emeritus, Virginia Tech University, 8044 Rural Retreat Court, Orlando, FL 32819, Phone: 407-363-9048, E-mail:
tgarman@bellsouth.net
Appreciation is extended to the InCharge Education Foundation for supporting this research.
Introduction
Sociological research data indicate that four factors
strongly predict happiness and overall well-being in
most cultures: health, economic status, employment,
and family relationships (Bernstein, 2004). People are
happier when they are healthy, employed, married or in
a committed relationship, and financially secure. The
study reported here explores relationships among
financial practices, financial well-being, and health.
Unlike many previous studies, however, this one
analyzes a large sample of financially distressed
consumers who contacted a national non-profit credit
counseling organization to seek assistance with heavy
outstanding debt. The purpose of this study is to
document associations between various health and
personal finance variables, identify characteristics of
consumers who perceive that financial problems affect
their health, and explore effects of interactions between
health and personal finances on the well-being of
financially stressed consumers.
Health and personal finance issues, individually and in
combination with each other, affect millions of U.S.
households. Major societal trends that have been
widely reported in recent years include an increasing
incidence of obesity and diabetes, low household
savings rates, and high household debt. Credit Card
Nation (Manning, 2000) and Fast Food Nation
(Schlosser, 2002), recent books that examine
Americans’ spending and eating habits, respectively,
describe complex problems that have become
increasingly interrelated.
Many Americans are unhealthy physically and fiscally;
they are overweight and over-indebted and are seeking
solutions to improve both their health and their
finances. There is evidence of many parallels between
factors such as environmental controls that affect good
health and foster financial success (Hollerith, 2004;
O’Neill, 2004). Health and wealth are also related on a
macro level. Modest reductions in the death rate from
common killers, such as cancer and heart disease, can
lead to trillions of dollars in economic benefits for all
Americans according to economists Murphy and Topel
(2003) from the University of Chicago. Just one major
health problem alone, obesity, is estimated to cost $117
billion nationally in medical costs and lost productivity
(U.S. Dept. of HHS, 2004). Obese people spend 36%
more on health care services and 77% more on
medications than average-sized people according to a
Financial Counseling and Planning Volume 16 (1), 2005
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study by the Rand Corporation (Geary, 2002; Olick,
2003). On an individual basis, the Centers for Disease
Control and Prevention (U.S. Dept. of HHS, 2003)
estimates that a 10 percent weight loss could reduce an
overweight person’s lifetime medical costs by $2,200
to $5,300.
Good health is a major factor in wealth creation. It is
associated with increased workplace productivity
resulting in higher earnings and savings, fewer wealth-
eroding medical expenses, and longer life expectancies
in which to earn compound interest on invested assets
and collect Social Security and other retirement
benefits (Lee & McKenzie, 1999). While good health
is affected by many factors, some of which are beyond
a person’s control, healthy lifestyle choices increase
the likelihood of a long and healthy life and a better
return on annuities and other retirement savings plans.
Healthy people provide the foundation for a wealthier
America (McKinnell, 2004).
Unfortunately, one in seven American families has
problems paying health-care costs, which can lead to
“juggling” of medical expenses with basic living costs
and negative patient behaviors such as delaying
necessary medical treatment and forgoing the use of
prescription drugs (Kissel, 2004). The percentage of
working-age Americans aged 18 to 64 without health
insurance was 20.1% in 2003; 46.3 million Americans,
or 15.2% of the population, lacked health insurance
(Dooren, 2004). This translates into roughly one in
seven Americans (Regnier, 2003), a startling statistic.
Even households with health insurance have had
difficulty with rising out-of-pocket costs such as
deductibles and co-insurance as employers increasingly
shift more expenses to workers (Fuhrmans, 2004).
Poor families, insured or not, have some of the heaviest
medical bill burdens with nearly 20% of those below
poverty level having trouble paying medical bills
(Kissel, 2004).
Not surprisingly, unpaid medical bills are associated
with a high number of personal bankruptcies.
Approximately one in five bankrupt households
described in The Fragile Middle Class (Sullivan,
Warren, & Westbrook, 2000) listed a medical problem
as a reason for filing for bankruptcy, making it the third
most common reason listed, after job loss and family
problems. A more recent study of 1,771 personal
bankruptcy filers (Himmelstein, Warren, Thorne, &
Woolhandler, 2005) found that medical problems
contributed to about half of all bankruptcies. This
included any medical cause such as a specific illness or
injury, uncovered medical bills exceeding $1,000, or
loss of work-related income due illness or injury. The
number of medical bankruptcies in 2001 was twenty-
three times the number in 1981. Medical bankruptcy
filers were described by the study authors as
“demographically typical Americans who got sick” and
were more likely than other filers to be middle class
and have experienced a loss of health insurance.
Needless to say, high household medical debt may also
preclude recommended wealth-creation strategies, such
contributing to a 401(k) plan or Roth IRA, resulting in
forgone savings opportunities. As with home repairs
and other contingent expenses, many consumers do not
plan for health care costs until a serious illness or
injury occurs (Vitt, Siegenthaler, Siegenthaler, Lyter,
& Kent, 2002). When unexpected medical bills arrive,
the collective impact of unexpected medical expenses,
interruption of income, and/or consumer debt can
trigger financial distress (Sullivan, Warren, &
Westbrook, 2000).
In addition to the cost of medical care, another way that
health and finances are related is the sheer cost of
unhealthy habits such as smoking and alcohol
consumption over time, thereby resulting in lost
household wealth. In states with high cigarette taxes,
the cost of a pack of cigarettes today is as high as $7
for some brands, including sales taxes (Berls &
Paolucci, 2004). In addition to the increased risk for
lung cancer, hypertension, and other health problems, a
pack-a-day smoker could spend over $2,500 annually
to support their habit. With 8% interest over 40 years,
$2,500 of annual savings would accumulate to almost
$650,000. The American Heart Association estimates
that 25% of men and 21% of women in the United
States are smokers (Cigarette Smoking Statistics,
2004).
Personal finances can negatively affect health because
overdue medical debt can result in delayed or
inadequate treatment and resulting anxiety. Personal
finances can also be negatively affected by health as
when increased medical expenses result in lower
lifetime asset accumulation and a poor credit history
from unpaid medical bills. There are a number of
health effects of poor financial behaviors such as
overspending and unpaid debts. First, there is the
associated stress and anxiety (Drentea & Lavrakas,
2000). Also, families that do not have health insurance
or money to pay for medical treatment or owe money
for past health care expenses may elect to forego
treatment or be relegated to emergency rooms and
clinics for primary health care (Vitt, Siegenthaler,
Siegenthaler, Lyter, & Kent, 2002). Persons
experiencing financial distress may also be unable to
follow recommended health maintenance practices
such as eating a healthy diet and receiving periodic
screening exams (O’Neill, Sorhaindo, Xiao, &
Garman, 2005).
Financially Distressed Consumers
©2005, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. 75
It is clear from the above discussion that financial well-
being and physical well-being are related in a variety of
ways. For the most part, however, efforts to improve
Americans’ health and finances have operated on two
separate, but parallel, tracks with separate literature and
advocacy efforts. Often, health educators do not talk
much about finances and financial educators do not
concern themselves much with health care costs (Vitt,
Siegenthaler, Siegenthaler, Lyter, & Kent, 2002). This
study of relationships between financial practices,
financial well-being, and health is an attempt to
examine these factors together using a national sample
of financially distressed adults, many of whom self-
reported health problems related to their financial
situation. The findings have implications for financial
educators, credit counseling practitioners, and
employee benefit personnel.
Literature
Review
Several recent studies have explored specific
relationships between health and financial well-being
or practices; for example, the financial cost of
unhealthy habits, the financial impact of increasing
health care costs, and links between financial stress and
health. Zagorsky (2004) investigated the effect of
smoking on an individual’s financial situation. Using
wealth and smoking data from the National
Longitudinal Survey of Youth 1979 cohort, he found
that the typical nonsmoker’s net worth is roughly 50%
higher than light smokers and roughly twice the level
of heavy smokers. There was also a statistically
significant negative relationship between net worth and
smoking, which harms a smoker’s wealth as well as
his/her health.
While a causal relationship cannot be proven by the
Zagorsky (2004) study, smokers appear to pay for
cigarettes with income that could be saved by
nonsmokers. Part of the explanation is, of course, due
to education and income levels, as smokers tend to
come from lower socioeconomic classes (Cigarette
Smoking Statistics, 2004). Studies show that the
frequency of smoking is more pervasive among those
with 9-11 years of education (35.4 percent) than among
those with more than 16 years of education (11.6
percent), and it is the highest among persons living
below poverty level (33.3 percent). While lower
income households obviously have less money to save
than others, there is also no doubt that elimination of a
smoking habit has the potential to greatly increase
financial asset-building, especially among the poorest
American households.
The 2004 Health Confidence Survey, sponsored by the
Employee Benefit Research Institute (Helman &
Fronstin, 2004), sheds additional light on heath-
personal finance connections. As health care costs
continue to climb at near-double-digit rates, more
Americans are being forced to cut back on retirement
savings contributions and make lifestyle changes to pay
for medical care (Kim, 2004). The study found that
more than 2 in 10 Americans consider health care to be
the most critical issue facing the U.S. today, ranking
evenly with terrorism/national security. In addition,
one quarter of those experiencing increased health care
costs reported decreasing their contributions to a
retirement plan and almost half (48%) reported
decreasing contributions to other savings. Nearly 2 in
10 (18%) said they had difficulty paying for basic
necessities (e.g., food, housing) while 3 in 10 reported
difficulty paying other bills. One-quarter (26%)
indicated that they have used up all or most of their
savings and 15% have borrowed money to pay health
care expenses. The Health Confidence Survey was
conducted in the summer of 2004 with a nationally
representative sample of 1,203 adults.
Kim, Garman, and Sorhaindo (2003) studied 175 credit
counseling clients of a large non-profit credit
counseling agency who responded to data collections at
two points in time, an initial survey and 18 months
later. They found that those who had high levels of
financial well-being and experienced fewer financial
stressor events had better health than others. Using
path analysis, these researchers found that, although
credit counseling did not have a direct significant effect
on health, it had indirect effects through post-
counseling financial stressor events and financial well-
being. Income, age, financial behaviors, financial
stressor events, financial well-being, and credit
counseling explained over one-fourth of the variance in
health. People who utilize the services of credit
counseling agencies typically have recently
experienced financial stressor events (Kim, Garman &
Sorhaindo, 2003; Staten, Elliehausen & Lundquist,
2002). These may be chronic patterns of overspending
and excessive charges on credit cards and/or
calamitous events such as unemployment, reduction in
overtime, uninsured medical costs, and divorce.
Xiao, Sorhaindo, & Garman (in press) used the same
data set of credit counseling clients as the current
study. They hypothesized that positive financial
behaviors, measured objectively and subjectively,
would reduce financial stress. A higher number of
positive financial behaviors such as reducing living
expenses and a higher score of self-evaluation of
financial behaviors were associated with a lower stress
level. Presumably a lower stress level has a positive
effect on one’s health as high levels of stress can cause
or aggravate physical illnesses such as high blood
pressure, migraine headaches, ulcers, ulcerative colitis,
and insomnia (U.S. Dept. of HHS, 1991). A stress-
laden situation or an emotionally inadequate response
Financial Counseling and Planning Volume 16 (1), 2005
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can also “throw off the body’s natural ability to heal
itself” (Health Encyclopedia-Diseases and Conditions,
2004; Sapolsky, 2004), although the exact chain of
causation is not known. Indeed, in this study, a lower
level of financial stress was associated with having a
lower debt load percentage and perceiving better health
and family relationships (Xiao, Sorhaindo, & Garman,
in press).
Kim & Garman (2003) studied 262 white-collar
workers in three states to examine relationships
between financial stress and absenteeism. They found
that financial stress was negatively related to
organizational commitment and positively associated
with absenteeism. A hypothesized relationship
between financial stress and stress-related illness or
health was not supported by this study. Another study
by Drentea and Lavrakas (2000), however, provided
evidence of a link between financial stress, specifically
credit card debt and stress regarding debt, and mental,
as well as physical, health. Using a representative
sample of over 900 Ohio adults, they found that
individuals reporting higher levels of financial stress
had higher levels of illness and physical impairment
than others with lower financial stress levels. The
higher an individual’s debt-to-income ratio, the more
likely they were to be in poor health. Similarly, a study
of credit counseling clients by Bagwell (2000) found
evidence that health was negatively affected by
financial distress.
Lyons and Yilmazer (in press) used data from the
1995, 1998, and 2001 Survey of Consumer Finances
(SCF) to examine the effect of financial strain on
health status controlling for the fact that financial
distress can be both a cause and consequence of poor
health. Results from models for three different
measures of financial strain indicated that poor health
significantly increases the probability of strain but
there was little evidence that financial strain
contributes to poor health. Thus, the direction of
causality is primarily from health to socio-economic
status, indicating that serious health conditions may
result in larger financial burdens, but large financial
burdens are unlikely to accelerate a decline in health
status (Lyons and Yilmazer, in press).
While the Lyons and Yilmazer (in press) study did not
find evidence that financial problems affect health,
other researchers have with samples of financially
distressed consumers. A November 2004 study (Kidd,
2005) of 1,590 consumers with credit card debts, 25
percent of whom had debts exceeding $10,000, found
that economic stress does impact physical health.
Headaches, inability to concentrate, and nausea were
the most common symptoms and eight percent of
respondents reported seeing a doctor because of health
problems related to financial stress. Women were
more likely than men to report stress-related health
problems. O’Neill, Sorhaindo, Xiao, and Garman
(2005) explored specific health effects associated with
financial distress. Using the same sample as the
current study, they found that more than 40% of
respondents indicated that their health was affected in
some way by their financial problems. The four most
frequently reported health effects associated with
financial distress were stress (46%), worry, nerves, and
anxiety (12%), depression (10%), and insomnia and
sleep problems (9%).
Smith and Kington (1997) examined the effects of
income and wealth upon the self-reported health status
of older Americans. Using data from Asset and Health
Dynamics Among the Oldest Old (AHEAD) and the
Health and Retirement Survey (HRS), they found a
strong positive relationship between household income
and wealth and the self-reported health status of
household heads, especially among poor households.
A national survey by the Principal Financial Group
(From Sick Care to Health Care, 2005) found that
employers who were highly regarded for excellence in
employee benefits were likely to utilize wellness
initiatives. These include paying employees to live
healthier lifestyles, providing flu shots, weight
management and smoking cessation programs, and on-
site fitness facilities. A search of “health finance”
studies in the online archive of The Journal of Health
Promotion found over a dozen articles describing
associations between health intervention efforts such as
worksite wellness programs, healthy behaviors, and
positive financial effects for individuals and employers
including decreased health care costs. The findings in
most of the studies mentioned above evidence
associations between poor health and poor financial
well-being, but do not demonstrate causality. Causal
factors are difficult to isolate; such an analysis is well
beyond the scope of this paper.
Methodology
Data Collection
Previous research studies that sought to understand
more about personal finance-health relationships
among similarly situated adults were conducted with
very small samples (Bagwell, 2000; Kim, Garman, and
Sorhaindo, 2003). Therefore, the availability of a large
national sample of financially distressed adults in this
study provides a unique opportunity to more carefully
describe any relationships that might exist among
financial practices, financial well-being, and health.
This study explores interactions between health and
personal finance on the well-being of financially
stressed consumers and effects that might result from
participation in a credit counseling agency’s debt
Financially Distressed Consumers
©2005, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. 77
management program (DMP). More specifically, this
study seeks to learn how financially distressed adults
perceive relationships between their health and
financial problems.
The population for this study was a group of financially
distressed consumers who telephoned a large national
non-profit credit counseling organization, seeking
assistance with outstanding debt and subsequently
joined its debt management program (DMP). Thus,
there is a selection bias in this study because this
sample consists of adults who took the initiative to
telephone a credit counseling agency stating that they
were seeking assistance with their credit and money
problems. This is confirmed by recognizing that, as a
group, this sample of adults self-reported more serious
personal financial distress than respondents in a
separate national sample of the general population who
reported high financial distress and low financial well-
being (Garman, Sorhaindo, Prawitz, O’Neill, Osteen,
Kim, Drentea, Haynes, & Weisman, 2005). Hence, the
findings can be generalized only to those adults who
are experiencing serious financial distress.
In mid-June 2003, a 32-item Personal Finances Survey
questionnaire was mailed to a sample of 7,200 people
who joined the program between February and April
2003. Thus, the respondents were new clients having
joined the DMP in the previous two, three, or four
months. Four weeks later, a follow-up postcard was
mailed to those who had not yet responded, reminding
them to return the questionnaire. After two additional
weeks, a second questionnaire and follow-up letter
were mailed to non-respondents.
A total of 443 surveys were returned as undeliverable,
typically because an address was incomplete, a person
moved without providing a forwarding address, or the
person was deceased. Thus, 6,757 questionnaires were
mailed and 3,121 respondents returned useable
questionnaires. The response rate is 46 percent, which
is more than double the return in previous studies
(Garman, Camp, Kim, Bagwell, Baffi, & Redican,
1999; Sorhaindo & Garman, 2002). The data were
self-reported by the respondents on printed
questionnaires and a careful review of each of the
completed questionnaires suggested that there was no
reason to believe that any respondents misreported
responses to the questions. The characteristics of the
sample closely matched the age, sex and geographic
area of the population, and did not differ from the non-
respondents.
Additional information on the debt load, debt load
percentage, and credit card debt balance of respondents
were obtained from client records maintained by the
credit counseling organization. The number of
observations with missing values for individual
questions determined the sample size for specific
analyses. Descriptive statistics about the total sample
are listed in Table 1 below. Males comprised 29% of
the clients, which is a typical distribution of gender for
credit counseling clients (Garman et al., 1999;
Bagwell, 2000; Sorhaindo & Garman, 2002; Staten et
al., 2002). Approximately 60% were either married or
living with a partner; 37% were unmarried. Median
annual family income was between $30,001 and
$40,000. Four out of five were employed, with 69%
working full-time; 62% were age 45 or younger. These
sample characteristics are consistent with previous
research studies of credit counseling clients (Bagwell,
2000; Kim, Sorhaindo & Garman, 2003; Staten et al.,
2002).
Variables
Variables for this study were operationalized as
indicated below.
Financial behaviors. Respondents were asked to reply
to binary questions (yes = 1 or no = 0) for nine specific
self-reported positive financial behaviors such as
“followed a budget or spending plan” and “cut down
on living expenses”. Five of the nine questions were
used previously by Kim, Garman, and Sorhaindo
(2003), and variations of the nine had been used by
others (Garman et. al., 1999). Two of the behaviors,
relating to participation in an employer’s retirement
plan and flexible savings account, were subsequently
dropped from this study because they are dependent
upon having an employer who offers access to a plan
and only 70% of respondents were employed full time.
A second financial behavior variable was respondent’s
self-evaluation of all their financial behaviors, a
subjective measure. The question was worded as
follows: “On the whole, how would you characterize
your financial behaviors?” very good=1, good=2,
satisfactory=3, and poor=4. In the analyses, the values
were reverse-coded for convenience of reading the
findings.
Financial Counseling and Planning Volume 16 (1), 2005
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Table 1
Descriptive Statistics (N=3,121)
Variable
Percent of
Respondents
Gender
Male 29
Female 71
Marital status
Married 53
Single with a partner 10
Single living alone 37
Annual family income
Less than $20000 24
$20001-$30000 23
$30001-$40000 17
$40001-$50000 13
$50001-$70000 13
$70001 or higher 10
Job status
No job 19
Part time 12
Full time 69
Age
25 or younger 13
26-35 25
36-45 24
46-55 20
56-65 11
66 or older 7
Number of people to support
None 39
One 21
Two or more 40
Home owner
Yes 54
No 46
Financial stress
none 2
low 12
moderate 51
severe 23
overwhelming 12
Financial satisfaction
Dissatisfied (index=1-2) 19
3-5 53
6-8 24
Satisfied 9-10 4
Perceived family relationship
Poor 4
Satisfactory 17
Good 42
Very good 37
Life at Work
Poor 5
Satisfactory 21
Good 50
Very good 24
Perceived health
Poor 7
Satisfactory 26
Good 44
Very good 23
Health affected by financial problems
Yes 43
No 57
Health improved since joining credit
counseling
Yes 48
No 52
Improved health. This variable was measured by the
following binary question (yes = 1 or no = 0): “Since
you joined [name of debt management program], has
your health improved?”
Improved finances. This variable was measured by the
following binary question (yes = 1 or no = 0): “Since
you joined [name of debt management program], did
anything happen in your life that improved your
finances?” If respondents answered yes, they were
directed to indicate specific things that happened such
as “found a better paying job” from among ten
responses provided. This question was included to
differentiate among things that might have contributed
to positive changes in personal finances beyond
participation in the debt management program.
Perceived effect of financial problems on health. This
variable was measured by the following binary
question (yes = 1 or no = 0): “Do you feel your health
has been affected by your financial problems?” If
respondents answered “yes”, they were directed to
indicate specific health effects in their own words.
Health status. This variable was measured by the
following question: “Overall, would you say your
health is very good, good, satisfactory, and poor”. In
the analyses, the values were reverse-coded for
convenience of reading the findings; poor=1,
satisfactory=2, good=3, very good=4. While previous
research has examined both emotional and physical
health (Garman, et al, 1999; Sorhaindo & Garman,
2002), asking respondents to self-report their health
without providing a specific definition of the term is a
common question in sociological, psychological and
medical research.
Negative financial events. This variable was measured
by asking respondents if they experienced any of
twelve negative events such as “took a cash advance on
a credit card” during the past twelve months.
Respondents were instructed to check all events that
applied by indicating their frequency as never, once, or
more than once.
Financial stress. This variable was measured by the
following question: “What do you feel is the level of
your financial stress today?” Responses were none =1,
low =2, moderate =3, severe =4, and overwhelming =5.
Financial satisfaction. This variable was measured by
a self-anchoring ladder that was originally developed
by Cantril (1965) and used by Porter and Garman
(1993). In this measure, there were two anchor points,
1 = dissatisfied and 10 = satisfied, with steps between.
Financially Distressed Consumers
©2005, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. 79
Family relationships. This variable was measured by
the following question: “By and large, your family
relationships are: poor=1, satisfactory=2, good=3, and
very good=4.”
Hypotheses
Previous research, cited above, generally supports a
positive relationship between personal finances and
health. The following hypotheses for this study are
based upon the results of these studies:
H1 :Improved health (self-reported) is positively
associated with the performance of positive
financial behaviors.
H2: Improved health (self-reported) is positively
associated with improved personal finances (self-
reported).
H3: Improved health (self-reported) is positively
associated with ten specific examples of improved
personal finances such as refinanced home
mortgage.
H4: Perception of health status is positively associated
with perceived effect of financial problems upon
health.
H5: Perceived effect of financial problems upon health
is positively associated with negative financial
events.
H6: Self-reported health status is positively associated
with level of financial stress.
H7: Self-reported health status is positively associated
with perception of financial behaviors.
H8: Self-reported health status is positively associated
with financial satisfaction.
H9: Self-reported health status is positively associated
with perception of family relationships.
Data Analysis
Since data were collected from a cross-sectional
survey, only associations between the variables listed
above can be explored. To establish preliminary
relationships among variables, Chi-square tests were
used as a measure of association between categorical
variables. These included perceived health status
(“Overall, would you say your health is…”) and
improved health status (“Since you joined [name of
debt management program] has your health
improved?”), and various indicators of financial status.
For several variables that were measured with a Likert
scale, ANOVA analyses were used to test if there were
differences in these variables among the four health
categories. In addition, multiple regression analyses
were used to test two additional research questions:
(1) Which respondents, by demographic charac-
teristics, were more likely to report that financial
problems affected their health?
(2) What were potential effects of perceived
associations between financial problems and
health on the well-being of financially stressed
consumers?
Tests of Association Between Variables
As a preliminary analysis to test associations between
financial practices, financial well-being, and health,
albeit without controlling for other factors, a number of
Chi-square tests were conducted. Most prior studies of
this type used small samples so this study provided a
unique opportunity to test associations between
variables with a large national data set of financially
distressed households. As shown in Table 2,
respondents who reported having improved health
since participating in the credit counseling program
were more likely to engage in positive financial
behaviors such as “cut down on living expenses” and
“started or increased my savings.”
For example, 77% of respondents who reported having
improved health since joining credit counseling
reported they “developed a plan for my financial
future” versus 61% of those who said their health was
not improved. There was also a 16 percentage point
difference in the number of respondents who said they
had “started or increased my savings”; 48% of
respondents who reported improved health status
versus 32% of those whose health had not improved.
These findings provide support for Hypothesis 1; that
is, a positive association between health status and
recommended financial behaviors. Results were
significant for all seven non-employment related
financial practices that were included in this study.
Table 2
Chi-square Tests of Association of Financial
Behaviors and Improved Health
Financial Behavior
Health
Improved
%
Health
Not
Improved
%
Sig.
Developed a plan 77 61 ***
Started or increased savings 48 32 ***
Reduced debts 95 84 ***
Followed a budget/spending plan 83 70 ***
Cut down on living expenses 86 75 ***
Contacted a financial planner 23 14 ***
Tried to determine retirement needs 42 29 ***
*** p<.0001
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Respondents were asked to indicate if anything had
happened in their life to improve their personal
finances. If they replied yes, they were asked to check
one or more of ten specific occurrences; e.g., “received
increase in salary or wage” and “reduced or paid off
some debts”, including an “other” category for items
that were not specifically listed. Representative of the
comments received as “other” responses were:
have worked out a budget
cut up credit cards
no more harassing phone calls
better relationship with my spouse
no more calls and lower payments
credit score increased
dumped non-working expensive girlfriend
partner got disability
promotion in rank in national guard.
As shown in Table 3, respondents’ self-reported
improved health status since joining the debt
management program was somewhat associated with
their self-reported improvement in personal finances.
Respondents who reported having improved health
since joining credit counseling were more likely to
report their overall personal finances had also
improved, 80% vs. 56%. Support for Hypothesis 2, a
positive association between self-reported improved
health and improved personal finances, was found.
Table 3
Chi-square Tests of Association of Improved
Finances By Improved Health
Improvement to Personal Financial
Situation
Health
Improved %
Health
Did Not
Improve
% Sig.
Improved overall finances 80.0 56.0 ***
Reduced or paid off debts 57.0 40.0 ***
Refinanced home mortgage 4.4 3.5
Received help from [name of debt
management program] 62.0 43.0 ***
Received increase in salary or wage 15.0 10.0 **
Found a better paying job 5.2 3.4 *
My partner received salary/wage
increase 5.1 3.3 *
My partner found a better paying
job
2.7 2.1
Health or day care flex account at
work 1.0 .4
Filed bankruptcy .3 .6
Other 6.7 4.3 **
* p<.05, ** p< .01, *** p<.001
Improved health status was also associated with some
specific improvements in personal finances. Not
surprisingly, with a sample of credit counseling
program clients, an area of improvement with a large
difference between groups was debt reduction.
Respondents who reported having improved health
since joining credit counseling were more likely to
report that they reduced or paid off some debts (57%
vs. 40%).
In six out of the ten specific areas of financial
improvement listed in the survey, respondents who
reported having improved health were more likely to
report their finances were improved. Most of these
areas were associated with an increase in household
income or a reduction in debt. Thus, Hypothesis 3, a
positive association between self-reported improved
health and specific examples of improved personal
finances, was partially supported.
Hypothesis 4 tested the association between
respondents’ perception of their health status and their
perception that their health is affected by their financial
problems. Table 4 indicates that respondents who
reported poorer health are more likely to perceive their
health is affected by financial problems than those in
very good health. For example, 65% of respondents
who reported poor health said their health is affected
by financial problems, while only 22% of those who
reported very good health said so.
Table 4
Chi-square Test of Association of Health By Health
Affected By Financial Problem
Heath Status
Poor
%
Satis-
factory
%
Good
%
Very
Good
%
Perceived Effect of Personal
Finances on Health
Not affected 35 43 58 78
Affected 65 57 42 22
Sig. ***
*** p<.0001
Similarly, a higher percentage of respondents who said
their health was not affected by their finances reported
they were in very good health vs. poor health (78% vs
35%). At higher levels of health status, there was an
increase in the frequency of the perception that
personal finances did not affect health. Therefore,
some support for Hypothesis 4 was found.
Financially Distressed Consumers
©2005, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. 81
The test for Hypothesis 5 explored the association
between the perceived effect of personal finances upon
health and twelve specific negative financial events
(e.g., “took a cash advance on a credit card” and
“bounced a check.”) related to money management and
the use of credit. Respondents were asked to indicate
the frequency of occurrence of each negative financial
event within the past twelve months as follows: never,
once, or more than once. These responses provide an
indication of the severity of their financial distress.
Table 5
Chi-square Tests of Association of Perceived Health
Effect by Negative Financial Events
Negative Financial Events
Never
%
Once
%
More
than
once
% Sig.
Received an overdue notice from
a creditor
29 36 48 ***
Paid one or more utility bills late 33 40 50 ***
Paid a credit card bill late 32 38 47 ***
Paid a late fee for paying a bill
late
30 36 47 ***
Received a phone call from a
creditor about a past due bill
34 38 48 ***
Received a call from a collection
agency about an overdue bill
34 46 51 ***
Reached the maximum limit on a
credit card
35 37 47 ***
Took a cash advance on a credit
card
42 40 46 *
Did not have enough money to
pay for a minor emergency
32 46 56 ***
Could not afford to go out when
desired
30 34 51 ***
Could not afford to make vehicle
payments
38 49 56 ***
Bounced a check 37 46 52 ***
*<.05,*** p<.0001
As shown in Table 5, respondents who experienced a
negative financial event were more likely than those
who did not to report that financial problems affected
their health. This was true for all twelve specific
financial events presented in the table. For example,
48% of respondents who received an overdue notice
more than once from a creditor reported that financial
problems affected their health, while only 29% of
respondents who did not receive an overdue notice said
so. These results lend support to Hypothesis 5, a
positive association of the perceived effect of financial
problems on health and specific negative financial
events.
Test of Association of Health Status
with Financial Variables
As shown in Table 6, self-reported health status,
ranging from poor to very good, was positively
associated with self-reported financial stress levels,
which ranged from 1 = none to 5 = overwhelming.
Respondents who reported having poor health had an
average financial stress score of 3.52 versus those who
reported having very good health with an average score
of 3.23. The mean score of stress level for the total
sample was 3.33. Thus, Hypothesis 6, a positive
association of health status and level of financial stress,
was supported.
Health status was also positively associated with
perceived financial behavior, financial satisfaction, and
family relationships. Respondents perceiving poor and
satisfactory health reported lower than average scores
for these variables while those who perceived having
good or very good health reported higher than average
scores for these variables.
Table 6
ANOVA Test of Association of Health Status with Financial Variables
Health
All respondents Poor Satisfactory Good Very good F Sig.
Financial Stress
1-none
5-overwhelming
N = 2,844 3.33 3.52 3.42 3.30 3.23 8.70 ***
Financial behavior
1-poor
4-very good
N = 3,016 1.98 1.76 1.84 2.01 2.17 36.79 ***
Financial satisfaction
1-dissatisfied
10-satisfied
N = 3,034 4.38 3.98 4.11 4.50 4.55 8.88 ***
Family relationships
1-poor,
4-very good
N = 3,050 3.13 2.87 2.85 3.18 3.43 76.12 ***
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For example, the average score for financial behavior
was 1.98 on a 4-point scale. Group mean scores of
respondents with poor, satisfactory, good, and very
good health were 1.76, 1.84, 2.01, and 2.17,
respectively. Similarly, the average score for financial
satisfaction for the total sample was 4.38 on a 10-point
scale. Group mean scores of the respondents who
reported poor, satisfactory, good, and very good health
were 3.98, 4.11, 4.50, and 4.55, respectively. These
findings provide some evidence to support hypotheses
7 to 9, that is, positive associations between health
status and characterization of financial behaviors,
financial satisfaction, and family relationships.
Over 40% of respondents who provided a numerical
rating of their health status answered “yes” to the
question “Do you feel that your health has been
affected by your financial problems?” As noted
previously, this perception of a linkage between
financial stress and health was particularly pronounced
among respondents who reported poorer health. Those
who were experiencing health problems were more
likely than others to cite financial problems as a cause.
Financial problems, for the most part, were not
medically related. According to data provided by the
credit counseling agency, the most frequently listed
reasons respondents gave for joining the DMP were
poor money management, 43%, and reduced income,
39%. Only 11 percent of respondents reported medical
debt; therefore medical debt such as doctor or hospital
expenses were not a primary cause of respondents’
financial problems (Sorhaindo, 2005).
The most frequently reported health effect of financial
problems was stress or being “stressed out.”
Additional details about the negative health effects of
financial stress can be found in O’Neill, Sorhaindo,
Xiao, and Garman (2005). Examples of specific health
problems associated with finances that were reported
by respondents are as follows.
I can’t sleep because of worrying about paying bills.
Caused anxiety and depression to be worse than it was.
Stressed out, overwhelmed with anxiety.
Could not afford to go to doctor when I was sick.
Can’t afford to eat healthier.
I have high blood pressure from the stress.
No time to work out or exercise.
Cost of medication.
I have been depressed and gained weight.
Multiple Regression Results
Nonparametric statistical tests such as Chi-square
allow researchers to compare groups, but are not as
powerful as parametric tests so the results are not as
conclusive (Lavine, 2005). Therefore, multivariate
analysis is also warranted to take into account the
endogeneity of some of the variables included in the
study. Multiple regression analysis analyzes the
variability of a dependent variable due to the separate
and collective effects of two or more independent
variables.
The first research question tested with multiple
regression was who, among the sample of financially
stressed consumers, was more likely to report that
financial problems affect their health? Initial Chi-
square tests were conducted to test the financial
problems/health effect variable with several
demographic variables. The results indicated
differences in terms of gender, age, number of family
members to support, and employment status, see Table
7. Female consumers were more likely than males to
report health being affected by financial problems. Age
showed an inverse U-pattern with mid-aged
respondents more likely to report financial problems
affecting health.
The more family members to support, the more likely
consumers reported health being affected by financial
problems. Unemployed and part time workers were
more likely to report the same situation. As shown in
Table 8, multiple regression results confirm the
association of the financial problem/health effect
variable with age, employment status, and the number
of family members to support.
Table 7
Chi-square Tests of Association of Finance/Health
Interaction Variable with Demographic Variables
Health has been affected
by financial problems
% Sig.
Gender
male 39
female 45
**
Home owner
no 43
yes 44
n.s.
Age
35 or younger 40
36-55 47
56 or older 42
*
Family Income
30000 or lower 44
30000-50000 43
50001 or higher 41
n.s.
Number of people to support
1 38
2 43
3 or more 46
***
Marital status
married 44
single 41
widowed 36
n.s.
Employment
unemployed 47
work part time 44
work full time 42
*
Financially Distressed Consumers
©2005, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. 83
Table 8
Regression Results for Demographic Determinants
of the Finance/Health Interaction Variable
Parameter
estimate
Intercept .2047 *
Age .0169 ***
Age square -.00018 ***
Male (vs. female) -.0381
Full time (vs. unemployed) -.0810 **
Part time -.0214
Support 1 person (vs. 3 or
more)
-.0895 ***
Support 2 persons -.0313
Married (vs. not married) -.0261
R square .0113 ***
* p<.05, ** p<.01, *** p<.001
The second research question tested with multiple
regression analysis was for the effects of perceived
interactions between financial problems and health on
the well-being of financially stressed consumers. To
test for effects of financial problems affecting health on
well-being related variables, a series of multiple
regression models were conducted, see Table 9. The
dependent variables included level of financial stress,
number of negative financial events, health status,
family relationships, financial satisfaction, and number
of positive financial behaviors. The first two variables
were negatively and other variables were positively
related to well-being. The independent variables in the
model include the financial problems-health effect
variable plus several demographic variables, such as
age, gender, employment status, number of family
members to support, and marital status. The finance-
health interaction variable was positively associated
with financial stress and number of negative financial
events, and negatively associated with health, family
relationships, financial satisfaction, and number of
positive financial behaviors.
Discussion
The population for this study was a large national
sample of credit counseling agency clients who took
action to contact an agency and sign up for a specific
debt management program (DMP). Their finances
were such that they found it advantageous to join a
debt management program. The sample is not one of
people who are financially insolvent with no hope of
paying their debts; those people typically contact
attorneys about declaring bankruptcy. Rather, it
consists of overly indebted and financially distressed
people The findings are, therefore, specific to this
population of adults, primarily females, who are
experiencing financial distress.
Table 9
Regressions of Financial Problem/Health Effect on
Well-being
Dependent variable
Parameter
Estimate for
Finance/Health
Interaction Sig.
Financial stress .3687 ***
Number of negative financial events .6858 ***
Health status -.4597 ***
Family relationships -.2824 ***
Financial satisfaction -.8051 ***
Number of positive financial
behaviors
-.1954 ***
* p<.05, ** p<.01, *** p<.001
In each regression model, control variables were age, age square,
gender, work full time, work part time, support one person, support
two persons, and marital status. Full regression results are available
from the authors on request.
This study provides some evidence of positive
associations between self-reported health status and
health status improvements with indicators of financial
well-being and positive financial behaviors. In
addition, there was a positive association between
perceived health status and level of financial stress.
Respondents in poor health had the highest financial
stress level and those in very good health the lowest
level of financial stress. This research is limited,
however, because it is unknown which variable came
first in the lives of this sample of financially distressed
respondents: was it changes in their financial behaviors
and financial well-being or the act of joining a DMP?
Furthermore, since this study uses cross-sectional data,
only associations, rather than causation, can be
explored. Thus, all findings are suggestive rather than
conclusive. Nevertheless, they present a case for
integrating health and financial issues in financial
counseling and education interventions and for
continued research of health and personal finance
linkages. As noted in the first paragraph of this article,
health and economic well-being are two of four factors
that strongly predict happiness and overall well-being
in life. Thus, it is not surprising to see strong
associations between respondents’ perceptions of their
health and financial status, financial behaviors, and life
events.
Reducing debt and receiving help from the debt
management program were the most frequently
reported personal finance improvements associated
with improvements in health status reported by
respondents to this survey. This finding supports those
of Xiao, Sorhaindo, & Garman (in press) and Bagwell
(2000), who found that, one year following financial
counseling, debt management program participants
indicated improvements in their health status. There
Financial Counseling and Planning Volume 16 (1), 2005
84 ©2005, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved.
was also a significant difference in perception of
improved overall finances between respondents
reporting improved health status and those that did not.
This finding is congruent with that of Drentea and
Lavrakas (2000), who found evidence of a link
between credit card debt, stress, and physical health,
and Kim, Sorhaindo, and Garman (2003), who found
financial well-being was associated with health in a
similar, but smaller, study of credit counseling clients.
In all of these studies, including the present one, the
direction of causality is unknown, however.
Conclusions must, therefore, be very conservative and
not, in any way, imply that financial problems directly
affect health or vice versa.
All nine hypotheses proposed for this study were
supported, indicating positive associations between
various aspects of heath and finances. Intuitively, it
makes sense that poor health and financial distress are
related. Poor finances are one of many life events that
can cause people to experience the physical effects of
stress that are associated with many health problems.
Results from this study add to the growing body of
literature that establishes relationships among financial
stressor events, financial well-being, and health. They
also make the case for possible health benefits, as well
as financial benefits, associated with credit counseling
debt management programs.
Implications
As noted above, educational and intervention programs
to help Americans improve their health and finances
have generally operated on separate, but parallel, tracks
(Vitt, Siegenthaler, Siegenthaler, Lyter, & Kent, 2002).
This is certainly true in Cooperative Extension and
other adult education programs. Results of this study
and others, however, indicate statistically significant
associations between financial practices, financial well-
being, and health. Findings suggest that holistic
programs should be developed to purposely blend
health and financial topics rather than having one area
of life (e.g., health) be viewed simply as a “byproduct”
of the other (e.g., finances).
The potential audience of people who have both health
and financial “issues” is large. An example of a
blended program is Small Steps to Health and Wealth,
developed by Rutgers Cooperative Extension (O’Neill,
2004), which teaches learners about behavior change
strategies that can be simultaneously applied to
improve their health and finances. Educators should
also pay special attention to learners with certain
characteristics. For example, in this study, middle-
aged consumers were found to be more likely to report
financial problems affecting their health and targeted
programs could be developed to address the needs of
this age group.
Continued research of health and finance associations,
particularly with panel data over time, is also needed to
gain insights to inform future counseling and education
efforts in the areas of health and personal finance.
Another research need is the inclusion of medical debt
as a variable for analysis in studies of associations
between financial problems and health effects.
According to internal data provided by the credit
counseling agency cited in this study, 11% of clients
surveyed between February and May 2003 cited
medical expenses as a reason for joining the DMP. Of
those who gave “medical” as a reason for joining, over
a quarter (26.5%) carried medical debt (Sorhaindo,
2005).
The great majority of financially distressed clients are
employed because, without an income, they would be
unable to join a DMP. Employers have these people on
their payrolls. Therefore, employers, in particular,
have an important role to play in helping Americans
improve their health and finances by offering targeted
programs and incentives. After all, the workplace is
where their employees spend the bulk of their time.
Employers also stand to benefit tremendously from
workers’ improved financial well-being. Not only are
there potential productivity benefits (Garman, Leech,
& Grable, 1996) but it is also likely that health care
costs associated with stress would be reduced, perhaps
resulting in lower health care cost increases for
employer-provided health plans.
The time has also come for health maintenance
organizations, health insurance companies, and others
who provide group health care services to pay attention
to the growing body of literature demonstrating
specific relationships between people’s personal
finances and their health. It would be entirely logical,
for example, for the health care industry to request that
mid- and large-size employers, who are already
providing financial education on retirement planning to
their employees, broaden that effort to include topics
such as cash flow management and credit. Quality
basic financial education could lead to improvements
in personal financial behaviors, increases in financial
well-being, and reduced levels of stress. Well-
designed prototype financial education programs that
emphasize the basics of money and credit management
and result in improved employee finances might very
well result in better employee health. Large employers
and health maintenance organizations concerned about
containing rising medical care costs for employees and
fostering a healthy workplace (Woolf, 2005) would be
foolish to overlook the accumulating evidence of the
relationship between personal financial well-being and
health.
Financially Distressed Consumers
©2005, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. 85
Findings from this study demonstrate a need for
coordinated assistance, especially to those households
that are simultaneously experiencing poor health and
financial distress. Many, undoubtedly, have low
incomes and net worth, making it difficult to weather
either a health or a financial crisis. Regardless of
causality (i.e., health causing financial problems or
vice versa), it is clear that these two aspects of life are
closely associated and should be better integrated. An
example of a coordinated outreach effort would be
hospital social workers or billing departments working
in cooperation with credit counseling agencies to
develop a workable repayment plan for financially
stressed patients in poor health.
Part of any outreach effort to improve health and
financial well-being should be a discussion of
developing resources to enhance resiliency. Resiliency
is the ability to withstand the impact of events that
impact one’s health and/or finances. In other words,
the ability to “roll with life’s punches.” There are a
number of resiliency resources that individuals and
families can develop. They include an emergency fund
(at least three months liquid savings); a low-interest
home equity line of credit; adequate health, life,
property, and disability insurance; human capital;
social capital (i.e., friends and family); awareness and
use of community resources; and personal qualities
such as optimism, focus, and organization (Danes,
1999). Rutgers Cooperative Extension
recently
developed a Personal Resiliency Resources Assessment
Quiz (Rutgers, n.d.) to help users assess their ability to
cope with expected and unexpected life events and
identify areas for improvement.
This study provides some evidence of positive effects
resulting from participation in a credit counseling
agency’s debt management program (DMP). The two
examples of improvements in finances that showed a
large difference between those reporting improved
health status or not were reduced debt and receiving
help from the counseling agency. Respondents who
reported improved health since joining the DMP were
more likely to report these improvements. While
caution should be advised regarding the strength of
these findings and their application beyond financially
distressed populations, they do suggest that health-
personal finance relationships could benefit from well-
designed credit counseling programs.
These results should come as welcome news to an
industry that has had well-publicized problems in
recent years including charges filed by the Federal
Trade Commission (e.g., AmeriDebt in November
2003), IRS investigations, Congressional hearings, and
class-action lawsuits (“FTC Accuses”, 2003; “Pushed
Off The Financial Cliff”, 2001). Findings of the
positive effects resulting from credit counseling, on
both the health and finances of clients, can help
reputable counseling firms distinguish themselves from
those with questionable business practices and past
inquiries by government regulators.
A final implication of this study is that the financial
problem-health effect variable may be a good indicator
to measure perceived consumer financial well-being, at
least for financially distressed populations. Other
existing literature such as Lyons & Yilmazer (in press),
implied that financial problems are unlikely to affect
health. However, 42% of respondents in this study
reported that their health is affected by financial
problems. Note that this question was asked directly to
financially distressed consumers, a large section felt
their health was affected by their financial problems,
and perceptions of health effects were closely related to
perceived financial well-being.
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