Wednesday, August 25, 2010

Health risks of investments gone bad

One of my prominent images of the Crash of 1929 is a Wall Street stock trader standing on the ledge of a high rise building preparing to jump. Yet even with that image rooted in our culture, people underestimate the risk of an investment going bad to their health and well being.

Numerous studies have highlighted the negative health effects of debt. A survey by Myvesta.org, a nonprofit financial crisis center, found nearly half of the people with debt problems experienced symptoms of depression and 90% felt some stress. Paying off debt lifts the stress and improves a person’s health. A study in Germany showed that over-indebtedness was associated with an increased prevalence of being overweight and obesity that was not explainable by the person’s socioeconomic status. And, a study of college students showed that debt and stress were associated with wide-ranging adverse health indicators.

It seems logical to think that the stress of bankruptcy would have negative health consequences. But studies have shown that people in the US and Canada that went through bankruptcy had a sudden improvement in their health status, family relations and their employment status. The relief of getting out from under debt and investments gone bad has a positive impact on health. Some of the relief of bankruptcy is cultural. For example, studies show that the impact of bankruptcy for Japanese debtors is harsh and resulted in family problems, health problems, suicides and running away from home. Recent changes in the US bankruptcy law as well as the current poor economy may not provide the same level of relief as bankruptcies have in the past.

We consider ourselves to be risk averse. We avoided the perils of penny stocks, the .com bubble, and house flipping. Our first sign of the extent of the current economic disaster was in 2006 when two major banks with our FDIC insured CDs were decertified by the FDIC in the same week (WaMu and Indymac). Since the CDs were purchased through an investment firm, the status of our money was up in the air for four weeks and our stress was high. It was inconceivable to us that FDIC protected CDs could become an investment gone bad. This has colored our view of investment risk under the current economic conditions. We are surprised to see people continue to take on second and third mortgages for foreclosed properties in Hawaii county and use their retirement savings to invest in businesses.

Considering the studies of the health effects due to debt and loss of money, there should be a health warning when purchasing stocks, taking on mortgages, buying bonds, and charging up high interest credit cards. In a tough economy, previously for-sure investments have become high risk investments. Now it is best to not only understand the risks of a specific investment but also the risk to your health if the investment goes bad.

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