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

Author

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  • Sarah Brown

    (Department of Economics, University of Sheffield)

  • Daniel Gray

    (Department of Economics, 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.

Suggested Citation

  • Sarah Brown & Daniel Gray, 2014. "Household Finances and Well-Being: An Empirical Analysis of Comparison Effects," Working Papers 2014015, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2014015
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    More about this item

    Keywords

    financial satisfaction; fixed effects ordered logit; household finances; overall life satisfaction; subjective prosperity;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy

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