How are health and personal finances related?

Health and personal finances are related in many ways. Perhaps the simplest association is the high cost of unhealthy habits. Kick a $5-a-day smoking habit, for example, and you can save $1,825 annually. Invest this amount with an 8% annual return over 25 years and you’d accumulate more than $130,000. One study found that the typical nonsmokers’ net worth is roughly 50% higher than light smokers and roughly twice the level of heavy smokers.

With respect to another health problem, obesity, the U.S. Department of Health and Human Services reports that a 10% weight loss will reduce an overweight person’s lifetime medical costs by $2,200 to $5,300. Other linkages between financial well-being and physical health include overdue medical debt resulting in delayed or inadequate treatment, stress and anxiety caused by financial difficulties, lower retirement asset accumulation, and/or a poor credit history due to high medical bills.

In addition, employers are starting to use incentives (e.g., cash bonuses) and/or penalties (e.g., insurance surcharges) to motivate workers to adopt healthy lifestyles. The healthier people are, the fewer wealth-eroding medical expenses and work absences they will generally incur.

Another health and wealth connection is that a healthy lifestyle increases a person’s chances of living long enough to collect their pension, Medicare, and Social Security benefits.

Unfortunately, about a quarter of Americans do not live long enough to see their 65th birthday and collect the promised payments that they have been prepaying via payroll deduction for decades. For the fortunate three-quarters who live long enough to be called senior citizens, the longer they live, the longer compound interest works its magic to increase the value of their savings. Increased longevity also has a flip side, however.

Those who follow a healthy lifestyle also need to accumulate adequate wealth so as not to outlive their assets. Stated another way, the “price” of better health is a need for increased wealth, as well as careful asset withdrawals.

Another association between health and wealth is the increasing cost of medical expenses, which divert income that might otherwise be invested. Even those with health benefits are being forced to assume an increasing financial burden through higher payments and deductibles. Also, so-called “consumer-driven health plans” are predicted to be offered to more workers, providing lower premiums in exchange for a higher deductible that must be covered out of pocket.

For more information about relationships between health and personal finances, visit the “Small Steps to Health and Wealth” Web site at Small Steps to Health and Wealth.

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