Household finances and well-being in Australia: An empirical analysis of comparison effects

Sarah Brown,Daniel Gray

doi:10.1016/j.joep.2015.12.006

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 the Household, Income and Labour Dynamics in Australia (HILDA) Survey, 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. The empirical analysis confirms that the household’s level of net wealth, assets and debt are important determinants of overall life satisfaction and financial well-being. The paper goes on to explore 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.

Highlights

Introduction and backgroundOverall life satisfaction is frequently argued to be made up of a variety of domains, such as financial satisfaction, job satisfaction and leisure satisfaction, amongst many others, see for example, Easterlin (2006), Layard (2006) and Van Praag and Ferrer-i-Carbonell (2007)
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
Model 1 includes the household’s level of net wealth, whilst model 2 separates net wealth into total assets, secured debt and unsecured debt in order to explore whether the components of net wealth have distinct influences on overall life satisfaction, financial satisfaction and subjective prosperity

Summary

Introduction

Overall life satisfaction is frequently argued to be made up of a variety of domains, such as financial satisfaction, job satisfaction and leisure satisfaction, amongst many others, see for example, Easterlin (2006), Layard (2006) and Van Praag and Ferrer-i-Carbonell (2007). In this setting, it is assumed that specific behaviours influence certain domains, and in turn these domain satisfactions determine an individual’s level of overall life satisfaction.

Objectives

Methods

Results

Conclusion