The FINANCIAL — We know little about the broader impact of financial crises on society as a whole. Media reports suggest potentially severe effects on health, education, and poverty. Some countries reported higher rates of suicide, falling birth-rates, increased HIV prevalence and more people going into poverty. Research that I have carried out recently drawing on data from 187 banking crises in 126 countries from 1970 to 2009 shows that financial crises actually do reduce life-expectancy.
Financial crises are commonplace throughout history. Evolved and less evolved economies have gone through financial turmoil in the past and they have all been affected badly. But financial crises do not only affect the banking system in isolation, or the economy in a broader sense, they also affect our day-to-day life. Economists traditionally measure the well-being of a society by its GDP, or by other economic indicators such as unemployment and inflation. However, focusing on these indicators fails to do justice to the wealth or the different aspects of a society’s well-being.
One of the most striking results of my study is the great impact a financial crisis has on the health of a population. The average life expectancy decreases by a few months soon after a crisis hits, and shows an even greater drop in subsequent years. The average life expectancy in my sample is around 66 years. My results suggest that in the five years following the crisis, people’s life expectancy decreases by nine months on average, which seems a huge effect.
Reports show that after a financial crisis there are more cardiovascular diseases, more suicides and an influence on the eating patterns – especially in developed countries where people eat less healthily. McDonald’s and Kentucky Fried Chicken have been among the few companies that increased recruitment during the most recent crisis.
Furthermore, pressures on governments to cut budgets reflect on healthcare too. Not only do governments dip into the healthcare budgets but also there is a significant decrease in households’ private expenditure on healthcare in the years following the crisis. Moreover, I detect a 10% increase in poverty. My study indicates that the impact of financial crises on health is much greater in less-developed countries.
Longer-term health effects might be driven by reduced quality of or access to healthcare, increased rates of addiction to alcohol and drugs, and/or greater poverty. In less developed economies, the HIV prevalence increases by 22-25%. The consequences extend beyond health and healthcare. My research indicates that in the five years following a crisis, birth rates decline by over 5%, possibly because parents are more pessimistic about the prospects of children. I also find that 3% fewer children enter primary school in the aftermath of a financial crisis. This suggests that schools are forced to shut in crisis times, and/or that parents keep their children out of school to save money or to let them help in making a living.
Overall, financial crises tend to come at a great cost to society. Not only is a country’s economy hit by a crisis, so are the health, education, and poverty of its people. Governments should better understand all of these implications and look at what policies could help reduce the social costs of financial crises.
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