Living in the Shadow of the Past: Financial Profiles and Well-Being

We here consider the link between individual financial profiles over time and well-being, as measured by life satisfaction. We in particular look at annual self-reported financial worsening and improvement information for over 25,000 individuals in Australian panel data from 2002 to 2017. We first find that satisfaction falls (rises) with a contemporaneous major financial worsening (improvement), with worsening having the larger influence. Second, the experience of these financial events in the past continues to be linked to current well-being. Last, only the order of financial-improvement spells relates to well-being: a given number of past years where finances deteriorated has the same association with current well-being whether the deterioration occurred in one continuous spell or was interrupted. We last show that these associations are heterogeneous over the distribution of well-being.