Indebtedness and depression

A couple of days ago when I released a post on a brief perspective on depression, I intentionally left out the details on a link between indebtedness and depression. I just wanted to highlight the possible sources of depression, its symptoms, and ways to overcome it. Considering the strong link between indebtedness and depression, this post is strictly focused on this topic. Do we have any evidence to support our exposition?

Currently available evidence
The evidence currently available is from studies conducted in the United States and Europe, including the United Kingdom, and Spain. The quantitative evidence is from the national or regional household surveys. For example, the survey of 8,500 people, conducted in the mid-nineties by the Institute for Research on Poverty and the Center for Financial Security at the University of Wisconsin-Madison, showed that people with credit card debt and overdue bills were much more likely to experience symptoms of depression than those without such debts. Again, those with student loans and mortgages didn’t experience bouts of depression that frequently compared to those who had too much credit card debt and outstanding unpaid bills. Keep in mind that the sort of depression experienced by these persons is different from the usual concept of ‘clinical depression’ or ‘chronic depression’.

Similar findings were found from data compiled from the three waves (2002-2005-2008) of the Spanish Survey of Household Finances, and presented in the IZA Discussion Paper # 8912, released in March 2015. Among other results based on multivariate models, it found that non-mortgage debt payments and debt arrears affected significantly people’s health. Mortgage debt didn’t affect health that badly as non-secured consumer debt (like amounts outstanding on credit cards, lines of credit, and other debt arrears) did.

Depression/health ailment varies by type of debt
How come mortgage debt and student loan cause lesser health problems or depression compared to other unsecured loans? It’s mostly the attitudinal and mental thinking about debt that makes the difference. For instance, people look at mortgage debt as a vehicle to acquire the biggest asset of their life – owning a home – and its repayment brings them more pride and security as they gradually increase equity in their home. The same with student loans. Persons take such loans to acquire higher education and skills to improve their employment prospects, job mobility, and eventually higher earnings. Its repayment equally doesn’t cause them any mental anguish as they realize that it was something required to improve themselves and their living standards. On the other hand, any debt used to satisfy current consumption, pleasure, travel, or as a bridge to get over spells of inadequate income during unemployment or emergencies could prove to be not only daunting but haunting as well. The payment of this accumulated non-mortgage debt including credit cards, car loans, lines of credit, etc. (excluding student loans) – depending on their respective rates of interest – could cause a serious anxiety and depression for debtors – especially when they have a poor cash flow or have scant or no personal savings. This anxiety and depression eventually affect debtor’s health.

What are some of the ramifications of indebtedness?
Statistics Canada continues to remind us that we carry more debt than we earn – the latest statistics show that we owe $1.68 for each dollar of disposable income (i.e., income after taxes and other deductions including premiums for Canada/Quebec Pension Plan, and Employment Insurance). This is a macro-picture at the national level, based on total household debt outstanding divided by total household disposable income. This ratio doesn’t imply that each and every household in Canada is in debt or owe some money – though a good majority does (according to TransUnion Canada, 26 million Canadians owed at least one type of debt) and most of the debt owed is mortgage debt taken by households to purchase their first home, or to refinance their home to raise funds for any personal reason (like pay-off consumer loans, investing in business, or financing a child’s higher education). With mortgage debt rising (partly as a result of steeply rising prices of homes) way faster than disposable income, some debtors’ are paying huge installments on mortgage debt on the one hand, and using consumer credit to finance their day-to-day needs on the other. These are asset rich but cash poor Canadians, vulnerable to all sorts of anxiety and depression.

Granted, debt finances consumer spending, which in turn, keeps the economy healthy and growing. On the other hand, imagine those financially distressed, anxious, and depressed, running to doctors or hospitals for treatment for all of their ailments arising from monetary distress and its related problems. Highly indebted are more vulnerable to committing suicide, heart attacks, strokes, consume illicit drugs to harm themselves out of sheer guilt, anger, frustration, shame, bad behaviour, keeping themselves away from work – all costing the economy in terms of both low productivity, and rising health care costs. No one knows the cost of treating debtors for ailments and suffering caused by their own actions including spending patterns.

Isn’t this an anomaly? On the one hand, we are offering credit to people, and on the other, we are paying to treat their ailments associated with financial distress brought on by their own actions. The situation is far worse for nearly two million Canadians who use pay-day lending services to finance their needs. This small proportion of Canadians is in too deep a hole to come out of it. But the society remains responsible for their health and well-being.

Need data to analyse the issue
There is an association between indebtedness and anxiety or depression. One wouldn’t know if indebtedness leads to depression or it’s the other way around as some of the depressed people may cure their depression by going on shopping, even on credit. We need some comprehensive data. Statistics Canada periodically conducts Survey of Financial Security in which it collects data on household’s components of assets and debts – besides data on its demographics, income, labour force participation, and coverage under employer pension plan. This will be the ideal vehicle to collect a bit of information on some general health issues experienced by a household (like the principal members feeling anxiety, depression, mental disorder, etc.) The regular National Health Survey conducted by Statistics Canada collects strictly health related data on Canadians. I believe it collects data on a respondent’s total income and labour force participation – but nothing on components of debts. In one survey or the other, we need to collect information on income, expenditure, health, assets, and indebtedness for a more meaningful analysis.


Anxiety   Depression   Indebtedness   Mortgage debt   Non-mortgage debt   Pay-day loan Health   Statistics Canada   Financial Security Survey   National Health Survey

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