Household Finances and Well-Being: An Empirical Analysis of Comparison Effects

39 Pages Posted: 25 Oct 2014

See all articles by Sarah Brown

Sarah Brown

University of Sheffield - Department of Economics; IZA Institute of Labor Economics

Daniel Gray

University of Sheffield

Abstract

This paper explores the importance of the household's financial position for an individual's level of well-being. Initially, the empirical analysis, based on a large nationally representative panel survey, aims to ascertain the impact of the household's monetary financial position on overall life satisfaction and financial well-being, with the latter being measured by financial satisfaction and subjective prosperity. Taking into account monetary factors in addition to income, the results indicate that the household's level of net wealth, assets and debt are important determinants of overall life satisfaction and financial well-being.The paper also explores whether the financial situation of households in a comparison group influences an individual's overall life satisfaction and financial well-being. The results suggest that the financial position of households in the comparison group is an important determinant of an individual's level of overall life satisfaction and financial well-being, with information effects generally dominating comparison effects. In addition, the effects of the comparison group are asymmetric depending on whether a household's financial position is above or below the average of the reference group and vary over the life-cycle.

Keywords: financial satisfaction, fixed effects ordered logit, household finances, overall life satisfaction, subjective prosperity

JEL Classification: D14, I31, J28

Suggested Citation

Brown, Sarah and Gray, Daniel, Household Finances and Well-Being: An Empirical Analysis of Comparison Effects. IZA Discussion Paper No. 8530. Available at SSRN: https://ssrn.com/abstract=2514703

Sarah Brown (Contact Author)

University of Sheffield - Department of Economics

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Daniel Gray

University of Sheffield

17 Mappin Street
Sheffield, Sheffield S1 4DT
United Kingdom

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