CHASM Seminar: Health Shocks and Cash Holding of Households in Rural China - what can it tell us in light of COVID-19?

Wednesday 10 June 2020 (11:00-12:00)

Helen Harris:

Speaker: Dr Lin Tian, CHASM. This seminar will be held via Zoom. If you would like to book a place, please email Helen Harris at

Prior studies found that health shocks can induce rebalancing in households’ financial portfolios towards safe assets (e.g., Rosen and Wu, 2004; Berkowitz and Qiu, 2006). However, most of the research in this field focus on developed countries. In fact, health shock can affect households’ financial situation more severely for low-income households in developing countries where the insurance and credit markets are under-developed (Islam and Maitra, 2012).

Our study uses longitudinal data from the China Health and Retirement Longitudinal Study (CHARLS) to investigate the nexus between health shocks and portfolio choice of middle-aged and aged rural residents in China, from the cash holding perspective. Dynamic analysis framework is exploited to address state dependence, initial conditions and unobserved heterogeneity. We observe robust evidence that, for middle-aged and elderly people living in rural China, health shocks are associated with a higher probability of holding only cash as safe assets, along with a higher proportion of their safe assets held in cash. Such effects of health shock on household cash holdings conducts indirectly through the rebalancing in their financial assets, and are more pronounced for those who are not eligible for immediate reimbursement of the healthcare expenses, do not have access to bank services, and live in small families.

Compared to the health shocks we explored in our study which only affect individual patients and their families, COVID-19 affects a much wider population and has a much larger socio-economic impacts on the society as a whole. Numerous households are now struggling with not only the earnings losses and possibly unemployment due to the lock-down and the slowdown of the economy, but also the potential increase in healthcare expenses. Given that COVID-19 is an ongoing phenomenon, the best approach to alleviating its impact is yet to be revealed. In this presentation, we will use our research to provide some useful insights on what policymakers and households can do to deal with households’ financial difficulties in this pandemic in the context of the UK.


Berkowitz, M. K. & Qiu, J. 2006. A Further Look at Household Portfolio Choice and Health Status. Journal of Banking & Finance, 30, 1201-1217.

Rosen, H. S. & Wu, S. 2004. Portfolio Choice and Health Status. Journal of Financial Economics, 72, 457-484.

Islam, A. & Maitra, P. 2012. Health Shocks and Consumption Smoothing in Rural Households: Does Microcredit Have a Role to Play? Journal of Development Economics, 97, 232-243.