When financials get tough, life gets rough? Problematic debts and ill health

It is often suggested that problematic debts antecede health problems. In this paper, we investigate whether individuals obtaining problematic debts are more likely to use mental healthcare or social guidance and/or financial help, and whether they have higher mental healthcare costs. We use nationwide individual-level panel data from the Netherlands for the years 2011-2015. We employ a difference-in-differences approach with individual fixed effects and find that obtaining problematic debt is strongly associated with ill (mental) health. We find that average mental healthcare expenditures increased with approximately 200 euro in 2014 and 2015 for individuals who experienced problematic debts in 2013. The effect corresponds to an increase of 30% of individual mental healthcare expenditures because of problematic debts. Furthermore, the use of mental healthcare increased with 7% and the use of social guidance and/or financial assistance increased with 40% after getting into problematic debt. We therefore conclude that policies that prevent people from getting into debt may generate positive external effects by saving on expenditures on healthcare or social guidance and/or financial assistance.