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Video: Monday, 24 February 2014

Mathijs van Dijk, Endowed Professor of Financial Markets at Rotterdam School of Management, Erasmus University (RSM) will hold his inaugural address, entitled “The Social Value of Finance”, on Friday, 7 March 2014. The topic of Professor Van Dijk’s address will be the value for society of finance as an academic field as well as the value for society of finance in the sense of a financial system (that is, banks and financial markets). He will argue that average life expectancy declines by nine months in the six years after the start of a financial crisis.

Financial crises reduce life expectancy

Professor Van Dijk will present the results of new research on the impact of financial crises on society, aiming to help all stakeholders to better understand and deal with the societal consequences of financial crises. In his address, he will explain that this impact goes far beyond well-known economic consequences such as reduced economic growth and increased unemployment. In particular, his research suggests that the health of the population of a country deteriorates significantly in the aftermath of a banking crisis. Most notably, average life expectancy tends to decline by around nine months in the six years following a crisis. Other aspects of society are also affected: primary school enrolment drops by 3.5% and fertility falls by 5.5%, but adolescent fertility rises by 4.5%. Less-developed countries are most vulnerable to the effects of financial crises.

Crisis do not only affect the banking sector, but have a profound impact on your day to day life.

Using data on 187 banking crises in 126 countries from 1970 to 2009, Professor Van Dijk finds that financial crises can have adverse consequences on people’s health. He will argue that one of the potential underlying causes is an increase in stress levels as indicated by a higher incidence of cardiovascular disease, increased suicide rates and increased addiction to alcohol and drugs. Similarly, Van Dijk finds a considerable increase in HIV prevalence. In the wake of a financial crisis, people also tend to eat less healthily and there’s an increase in poverty levels, especially in less-developed countries.

Another likely cause of the health effects is that government budgets come under pressure in times of financial crises; budget cuts often affect government spending on healthcare, which may harm the availability and quality of healthcare. In addition, private spending on healthcare tends to decrease, for example because people postpone visiting the doctor.

Other health effects include a considerable decrease in average fertility, measured in births per woman, but a marked increase in adolescent fertility by 4.5% relative to the global average, which is 62 births per 1,000 women aged between 15 and 19. Reducing adolescent fertility is one of the Millennium Development Goals formulated by the United Nations.

Van Dijk will also argue that financial crises can affect education, especially in less-developed countries, with primary school enrolment decreasing 3.5% during the six years after a crisis. This suggests that parents keep their young children out of school in times of crisis, perhaps to save money or to let them help in making a living.

When distinguishing between different groups of countries, Van Dijk finds that the impact of a banking crisis on economic growth and unemployment is at least as large for developed countries as it is for less-developed countries, but less-developed countries bear greater social costs.

Investigating the development of social indicators around financial crises broadens our understanding of how societies are affected by such crises, says Van Dijk. A better understanding of which parts of society are hit hardest by financial crises will help governments to develop policies to alleviate their societal impact. The goal of Van Dijk’s research in the coming years is to help people and policy makers to better understand and deal with the societal consequences of financial crises.

prof.dr. M.A. (Mathijs) van Dijk
Professor of Financial Markets
Rotterdam School of Management (RSM)
Erasmus University Rotterdam
Mathijs van Dijk

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