Economic Welfare and Subjective Assessments of Financial Situation of European Households

Abstract

Purpose: This work presents a model of the relationship between subjective assessments of the financial situation of domestic households and financial well-being expressed in actual consumption and saving levels. Design/Methodology/Approach: The research was conducted through a detailed analysis of changes in subjective assessments of the financial situation of households in particular periods. Confirmatory factor analysis was used for formal empirical verification. Modeling was preceded by a k-means grouping of European countries and reduced variables by analyzing the main components. Findings: Subjective assessments of household finances are of varying strength but significantly correlated with consumption and saving in different clusters of European countries. The CFA model presented considers the personal effects of countries and explains the volatility of household financial behaviors. Practical implications: One of the new results is that subjective assessments of household finances are of varying strength but significantly correlated with consumption and saving in different concentrations of European countries. The identification of household financial assessment factors was carried out based on a survey covering all European Union countries and the United Kingdom, i.e., 28 countries. Originality/Value: The CFA model presented considers the personal effects of countries and explains the volatility of household financial behavior. Finally, the article contributes to the literature on personal feelings and financial decisions of households.