Don't be surprised when you hear a financial expert advising you to take care of your health. Taking a balanced diet, doing regular physical activity and having a surrounding peaceful environment (at work with your colleagues or home with your family) equals well-being. It's a lapalissade (truism).
The Dalai Lama, when asked what surprised him most about humanity, answered: "Man! He sacrifices his health in order to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then dies having never really lived". This is one of the best definitions of human behaviour.
If you don't see yourself in this definition, kudos. It means you can balance the following facets: income, retirement savings plan, health care and, at the same time, well-being.
Health, wealth and well-being
Health is one of Pedro Moreira's Money Framework by Euroconsumers Invest quadrants because it affects throughout life the ability to generate money and savings; it can also disrupt a family's financial plan.
First, if you're healthy, you can manage your budget better because you'll be spending far less on health care. Of course, we know that no one wishes to have health problems or any disability. However, several studies point out that a sedentary life in which there is no food care accompanied by lack of exercise causes diseases that would be preventable, such as high cholesterol and type 2 diabetes. There are millions of people worldwide in these conditions:
In Europe, one in six adults is obese, which can lead to type 2 diabetes (for example). It shows that many of us are not taking proper care of our health.
Second, if you have weaker health, on average, you will be less able to generate money, therefore less wealth. We insist, as a rule, when you are healthy, you must do everything in your power to remain so. Try to treat all health threats or weaknesses as soon as possible.
A study published in the US by the National Bureau of Economic Research, "The lifetime costs of bad Health", by M. Icardi & CA (2017, revised 2018), questions "how important is health risk over the life-cycle?":
"Bad health can negatively affect individuals through multiple pathways. When markets are incomplete, this can render into a substantial disparity in financial results and prosperity, especially when weak health is persistent.
Various characteristics of the data suggest that health-related inequality in economic outcomes is considerable. Foremost, in addition to higher medical spending, unhealthy people have significantly lower income than healthy people, due to their more insufficient labour supply and lower earnings conditional on working.
For instance, among prime-age men with a high school degree (ages 45 to 55), participation among the healthy is over 90% while participation among the unhealthy is around 70%. Also, the healthy, earn, on average, 28% more than the unhealthy.
Unhealthy people tend to accumulate substantially less wealth than healthy people. The gap in wealth by health starts at relatively young ages and becomes very large by retirement time.
"Among 65-year-old males with a high school degree, the median wealth of the healthy is almost twice that of the unhealthy; $230,000 for the former versus $120,000 for the latter (in 2015, dollars)".
Third, your health impacts your life expectancy. Those who are in better and vibrant health, and remains like this, tend to live a few more years as they age. Of course, however, lifelong risks, especially coming from the profession you take, and access to healthcare systems can also affect life expectancy. This is one of the conclusions of the European Commission's study "2018 Health at a Glance".
"People with a low level of education can expect to live six years less than those with a high level of education". Large disparities in life expectancy persist not only by gender but also by socioeconomic status. On average, across the EU, 30-year-old men with a low level of education can expect to live about eight years less than those with a university degree (or the equivalent).
In contrast, the "education gap" among women is narrower, at about four years. These gaps largely reflect differences in exposure to risk factors, but also indicate disparities in access to care."
Consider the threats to your wellness in your financial planning, and budget any potential expenses you may have to face in the future and remember, "prevention is better than cure".
The circle of life has no mercy
All living beings are governed by birth, development, reproduction and death. No matter how different this process can be for each person, no one can break the circle. Meaning, you will age and die. The question is, how financially prepared do you want to be when you reach retirement time?
The economist Franco Modigliani, winner of the Economics Nobel Prize in 1985, developed a life hypothesis where it conceives that during the period of activity, the individual saves and builds a capital that consumes in retirement.
The Modigliani Life Cycle Theory explains that people should save at the high-income stages because they will need to compensate for the loss of income in retirement. It is a theory that assumes that revenue at the pension stage will not be enough to cap expenses. This theory, from 1950, remains current since this is a concern of the 21st century, increasing the risk of impoverishment for the most advanced age group.
Modigliani's theory is based on consumption, earning income and managing savings for retirement. Families consume goods and ask for credit (to study, to buy a house). In their early years of employment, they develop their careers, obtaining higher income which surfaces their domestic expenses, granting them to save money. It is the period of accumulation of assets that lasts approximately up to 40 years.
After 40, and up to 60/65 years, enters the maintenance phase. It is a period that you can continue to save even though the income from work diminishes. But, at the same, the investments you made during this time are also producing results.
Finally, when retirement arrives, there is a significant drop in income ("I stop working" - hypothesis considered in the theory), but you continue to consume according to your usual consumption pattern. In this case, you will have to resort to your wealth-income (house rents, savings interest, investment income, pension plans) to supplement the statutory pension to which you are entitled. It's the divestment phase. We only expound this theory to help you make plans for the family by projecting the challenges that arise throughout life. And, of course, consider the different facets of the Money Framework.
Money Framework by Euroconsumers Invest
Regardless of your age, what counts is that you perform the overall planning exercise by using the different levels suggested in the Money Framework map. Whatever your rank is as an investor, we recommend that you repeat the activity along with the map cyclically (at least once a year) whether you are at the beginning of your career, with 20+ years of work or retired.
For example, let's suppose you are retired and can no longer spare what you earn. Do you own any assets? Do you wish to pass on some inheritance to your family, but you fear the money you might need to take care of your health will not be enough? Don't worry, contact a financial advisor to help to redefine your financial plan.
In addition to the need for taking care of your health, also take care of your short and long-terms financial asset's "health". Do not hesitate to share your questions with a financial expert or the Euroconsumers Invest team. And if you want to be cognisant of all health recommendations, check the Euroconsumers Health Channels in Belgium, Brasil, Italy, Portugal and Spain.
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