The Financial Impact of Improved Health Behaviors

Health and wealth are related in many different ways. First, there is the sheer cost of unhealthy habits. Eliminate a $10 a day smoking or junk food habit, for example, and you can save $3,650 annually, plus interest. That’s just the immediate savings. There are also savings over the long term for the rest of someone’s life. The Centers for Disease Control estimates that a 10% weight loss could reduce an overweight person’s lifetime medical costs by $2,200 to $5,300. Delaying the onset of diabetes can save thousands of dollars annually in increased medical costs.

Secondly, financial problems can affect a person’s health status and vice versa. For example, overdue medical bills can result in physical symptoms of stress (e.g., migraines, insomnia, and anxiety) and/or delayed or inadequate treatment. Financial distress also makes it difficult to afford recommended health maintenance practices, such as routine check-ups and eating the recommended 5 to 9 servings of fruits and vegetables per day. High health costs can lead to a poor credit history and/or bankruptcy and reduced income available to save for retirement and other financial goals. Medical problems were found to be associated with about half the cases of bankruptcy filed in 2001.

A third health and wealth relationship is that people in poor health often die at a relatively young age and spend thousands of dollars- money that could otherwise have been invested- on prescription drugs and health care costs. Many don’t live long enough to collect the pension and Social Security benefits that they spent a lifetime working for. On the other hand, those who practice recommended health behaviors will more likely exceed average life expectancy and need a large retirement nest egg to insure that they don’t outlive their assets. Most financial planners routinely plan for life expectancies in the mid 90s to assure that their clients don’t run out of money.

Below are specific relationships between health status or behaviors and personal finances:

• A typical non-smoker’s net worth has been found to be about 50% higher than that of light smokers and about twice the level of heavy smokers.
• An increasing number of employers are requiring employees who smoke to pay higher health insurance premiums than non-smokers and/or they are paying incentives to those who quit. In some twenty states without smoker-protection laws, workers can be fired for refusing to quit smoking.
• Studies have found that physical appearance affects a person’s earning ability. There appears to be a “fat penalty” for overweight workers, particularly women, who earn less than their slimmer peers. Similarly, smokers have been found to have lower earnings than non-smokers who do similar work.
• Research findings also show an association between weight loss and wealth accumulation. It has been suggested that some people develop a “prevention mindset” where they are likely to consider the future implications of present-day activities such as reading nutrition labels and saving money.
• Inactivity has been estimated to cost between $670 to $1,125 per person per year. To combat health costs related to overweight and obesity, some employers are providing monetary incentives for weight loss (e.g., a dollar per pound), exercise programs, weight loss contests, and/or access to fitness centers.
• Healthy people (non-smokers and those in normal weight ranges) pay lower premiums (preferred rates) for life insurance, compared to smokers and those who are overweight. Policy pricing reflects the strong association between healthy lifestyles and prevention and additional years of life.
• Higher health costs, in general, affect those with health “issues” (e.g., hypertension and diabetes) the most, due to the ongoing cost of prescription drugs, deductibles, co-payments, and other expenses. Rising health care costs have been shown to directly affect household finances. One-quarter (26%) of respondents to the 2005 Health Confidence Survey, sponsored by the Employee Benefit Research Institute, reported that they decreased their contributions to a retirement savings plan as a result of the increased cost of health care and 45% reported decreasing other savings.
• Overweight and obese individuals and smokers often pay more than others do for certain expenses such as health, disability, and long-term care insurance. According to a study by The Rand Corporation, obese individuals also spend about 36% more than average-sized people on health services and 77% more on medications. In addition, “Big and Tall” sizes for men and “Plus-Size” clothing for women are estimated to cost 10% to 15% more than regular-size clothing.
• Healthy lifestyle choices, such as proper diet and exercise, increase the odds of living a long and healthy life. People who live longer have more time to grow their savings through the awesome power of compound interest. If someone continues to grow their money between, say, ages 75 and 90, instead of dying in their mid 70s, their survivors and heirs will be in a much better financial position.
• Financial security and health are strongly related to personal happiness and to one another. The ancient philosopher, Virgil, was once quoted as saying, “The greatest wealth is health.” In other words, health is as much of an “investment” as stock or bonds. An unhealthy life is an unattractive situation, no matter how much money a person has. It, therefore, makes no sense to destroy your health in the process of accumulating money and, in turn, reduce your earning ability due to poor health. Both health and wealth require proactive action and are jeopardized by simply doing nothing.

So what all does this information really mean? It means that health and wealth are strongly related and changes in one area of life can have positive effects upon the other. Do you want to put research into practice? Start by identifying practices that you can directly control and calculate the potential weekly and annual financial savings of improved health behaviors. Seeing the numbers that are possible may provide an incentive to make positive changes. Several examples are provided in the worksheet below. The savings listed are actually understated because interest on the amounts saved is not included.

The Financial Impact of Improved Health Behaviors Worksheet

References

Brat, I. (2005, Dec. 20). A company’s threat: Quit smoking or leave. The Wall Street Journal, D1, D6.

Cruise, J. (2005, March 4-6). Lose weight, earn cash. USA Weekend, 14.

Drentea, P. & Lavrakas, P.J. (2000). Over the limit: The association among health status, race, and debt. Social Science & Medicine, 50, 517-529.

Hollerich, A. 2004. The health and wealth factors. Gahanna, OH: Brass Ring Productions, Ltd.

Himmelstein, D.U., Warren, E., Thorne, D., & Woolhandler, S. (2005, February). Illness and injury as contributors to bankruptcy. Health Affairs, 10.1377/hlthaff.w5.63-w5-73.

Kadet, A, & Wherry, R. (2006, March). How to make a million. Smart Money, 55-63.

Kim, J.E. (2004, Nov. 2). Rising health costs hinder retirement savings. The Wall Street Journal, p. D2.

Lee, D.R. & McKenzie, R.B. 1999. Getting rich in America: 8 simple rules for building a fortune and a satisfying life. New York: HarperBusiness.

Olick, D. (2003, March 4). Fat takes a toll on the U.S. economy. Retrieved April 26, 2005 from httP://msnbc.msn.com/id/3072883/

O’Neill, B. (2005). Health and wealth connections: Implications for financial planners. Journal ofPersonal Finance, 4(2), 27-38.

O’Neill, B. Small steps to health and wealth (2004, December). The Forum For Family and Consumer Issues, 9(3). Retrieved January 22, 2005 from www.ces.ncsu.edu/depts/fcs/pub/9_3/smallsteps.html.

O’Neill, B., Sorhaindo, B., Xiao, J. J., & Garman, E. T. (2005). Negative health effects of financial stress. Consumer Interests Annual (American Council on Consumer Interests). Retrieved May 27, 2005 from www.consumerinterests.org/i4a/pages/Index.cfm?pageid=4077.

Preventing obesity and chronic diseases through good nutrition and physical activity (2003). Washington DC: U.S. Department of Health and Human Services. Retrieved October 28, 2004 from http://www.healthierus.gov/steps/summit/prevportfolio/PA-HHS.pdf.

Should you put your obese clients on a diet? (2004, June). Journal of Financial Planning, 17(6), 24.

2005 Health Confidence Survey: Cost and quality not linked (2005). EBRI Notes, 26(11).

Wysocki, B. (2004, Oct. 12). Companies get tough with smokers, obese to trim costs. The Wall Street Journal, p. B1, B13.

Zagorsky, J.L. (2004). Does smoking harm wealth as much as health? Consumer Interests Annual, 50.

Was This Page Useful? Not Useful Very Useful 1 2 3 4 Comments: Leave Blank: Average Rating: 3.89 out of 4 1 2 3 4 9 users have rated this page.