Recession Depression: Mental Health Effects of the 2008 Stock Market Crash

How do sudden, large wealth losses affect mental health? Most prior studies of the causal effects of material well-being on health use identification strategies involving income increases; these studies as well as prior research on stock market accumulations may not inform this question if the effect of wealth on health is asymmetric. We use exogenous variation in the interview dates of the 2008 Health and Retirement Study to assess the impact of large wealth losses on mental health among older U.S. adults. We compare cross-wave changes in wealth and health for respondents interviewed before and after the October 2008 stock market crash. We find that the crash reduced wealth and increased depressive symptoms and the use of anti-depressants. These results suggest that sudden wealth losses cause immediate declines in mental health; for example, a loss of $50,000 of non-housing wealth increases the likelihood of feeling depressed by 1.35 percentage points, or by 8%.