Depression and the Financial Planning Horizon

TitleDepression and the Financial Planning Horizon
Publication TypeThesis
Year of Publication2020
AuthorsChoung, Y
Academic DepartmentFinancial Planning, Housing and Consumer Economics
DegreeDoctor of Philosophy
UniversityUniversity of Georgia
CityAthens, GA
ISBN Number9798645489533
KeywordsDepressed people, financial decision making, Financial security

With greater numbers of people living longer, the question of how to prepare for financial security is an important issue. However, there is a noticeable increase in the prevalence of mental disorders, which deteriorates financial well-being in later life. Especially, depression is amongst the most common psychological disorders in older adults. People with depression have great difficulty tackling the task of planning and are more likely to make short-sighted financial decisions. Designing and managing a long-term financial plan can be particularly challenging for depressed people. To mitigate this problem, there is a growing need for research on factors that may affect the financial time preferences of older adults who suffer from depression. This is because financial time preference plays a vital role in determining the choices that people make when deciding between their saving and consumption trade-offs within the constraints of their financial resources and time horizon. Previous literature has found that people with depression have a lower preference for long-term economic benefits than healthy people when they face intertemporal choices. Depressed people’s abnormal time perception, insufficient resources, and negative expectations with regards to the future have a significant influence on their time preference. Hence, financial decision making for the future with a far-sighted perspective is especially needed for older adults who suffer from depression. However, there exist scant studies on the extent to which the financial planning horizon shifts with the onset of depressive symptoms. To fill this gap in the literature, this study utilized a five-category financial planning horizon measure in the Health and Retirement Study (HRS) and estimated regression models that identify depression as a determinant of the financial planning horizon. The purpose of this study is to explore whether depression contributes to greater preference for a shorter financial planning horizon of individuals. The result from the empirical analyses of this study finds that depression is negatively associated with the financial planning horizon. The implications of this finding can have ramifications for individuals with depression who need a long-term financial plan for the future.

Citation Key11099