Effects of Health Status on Household Portfolio Choice

Abstract or Introduction

The literature on household finance establishes a framework to understand the portfolio choice of individuals. In the light of demographic transition this research proposal focuses on the health status of individuals and uses empirical data to understand how the health status itself and changes in this variable influence the portfolio choice. The key contribution of this research proposal is to characterize the health status of individuals using a newly available and previously unexploited measure. Instead of employing categorical variables, we introduce the subjective life expectancy as measure for the health status. This approach offers several advantages because it captures additional information such as an expectational component about the future health status. Using the self- reported health status this information was not considered although dynamic models clearly point at the influence of expectations on the household portfolio choice. To estimate the impact of
the health status on the portfolio choice of individuals we use the German SAVE dataset provided by the Mannheim Research Institute on the Economics of Aging.