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Financial Strain and Smoking

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Abstract

Using the 1999–2005 waves of the Panel Study of Income Dynamics (PSID), this study examines the relationship between family financial strain and smoking among women and men. Family financial strain is reflected by family financial solvency and the availability of emergency funds. Results indicate that individuals residing in families with insufficient emergency funds are more likely to smoke. Moreover, the relationship between insufficient emergency funds and smoking is observed across various income and education groups. Further analysis suggests that the onset of a financial strain increases their probability of a smoking relapse among men by 8–14% points.

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Notes

  1. According to economic theories of smoking behavior (Becker and Murphy 1988; Loh et al. 2009; Luo et al. 2003) and under the assumption that cigarettes are normal goods (see Gallet and List (2002) for literature review of income elasticities), financial insecurity and the decrease of available resources should lead to a decrease in smoking intensity and a higher probability of smoking cessation.

  2. Individuals with lower risk aversion and lack of self-control are also less likely exhibit prudent health behaviors. Individuals who are less risk averse are more likely to invest in risky rather than safe assets (Rosen and Wu 2004) and individuals with lower self-control may be less likely to control compulsive shopping behavior. Thus, unobserved individual attributes, such as risk aversion and self-control can be related to both poorer health behaviors and higher probability of financial strain.

  3. Please see Gouskova et al. (2008) for detailed description of sample weight construction. Sample weights are used for both descriptive and regression analysis in the present study.

  4. Later on in the paper we conduct a sensitivity check that includes a poverty threshold.

  5. Note that this list of variables does not include occupation controls. The 1999 and 2001 waves of the PSID use the 1970 Census occupation codes. The 2003 and 2005 waves of the PSID use an occupation code derived from the 2000 Census. These 2000 Census occupation codes cannot be mapped easily to the 1970 Census occupation codes for two reasons. First, some of the occupation categories are different. Second, the wording of categories is different: even when the words appear to be the same, the definitions of the categories are sometimes different. So, to examine whether adding occupation variables into the analysis changes the results, we split the sample into 1999-2001 and 2003-2005 subsamples. We re-estimated the baseline model (1) for each of these subsamples. Then, we added occupation variables into regressions for each of these subsamples. The results indicate that estimated associations between financial strain and smoking do not change substantially when occupation controls are added.

  6. The fixed effects technique is often used in the literature to address endogeneity and the role of preferences. Since a large share of families under financial strain experience it for a long period of time, it is possible that chronic financial strain may have a larger effect on smoking. If so, a change in estimated coefficients once fixed effects are applied could either be due to chronic financial strain having a larger effect rather than due to individual preferences.

  7. Note that economic models of smoking suggest that a higher degree of resource limitation should lead to a lower probability of smoking.

  8. We also tried to use instrumental variables to address the issue of causality. We considered an indicator of whether a family received gifts and inheritances worth $10,000 or more in the past two years, and an increase in the house value in the past two years as instrumental variables for the financial strain measures. Unfortunately, all of these instruments were weak.

  9. The effect of financial insolvency on smoking for men in the highest income quartile could be due to the small sample bias: only 2.42% of men in the highest income quartile live in financially insolvent families (see Table 6).

  10. We also tested the financial consequences of smoking hypothesis by examining how the effect of smoking on financial strain changes once regressions are augmented by total annual out-of-pocket medical expenditures and average state cigarette price. The results show that the associations between financial strain and smoking do not change substantially indicating the financial consequences of smoking are unlikely to be the main mechanism behind the association.

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Acknowledgement

I am very grateful to Alan Monheit for useful discussions and to the participants of the seminar at the Agency for Healthcare Research and Quality and to the participants of the Conference on Pensions, Private Accounts, and Retirement Savings over the Life Course for their comments. This research was funded by the National Institute on Aging (Grant AG029409-02) through the University of Michigan.

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  1. UMDNJ—School of Public Health, 683 Hoes Lane West, Room 321, Piscataway, NJ, 08854, USA

    Irina B. Grafova

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Correspondence to Irina B. Grafova.

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Grafova, I.B. Financial Strain and Smoking. J Fam Econ Iss 32, 327–340 (2011). https://doi.org/10.1007/s10834-011-9247-2

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