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1. Overall life Satisfaction with satisfaction financial situation Coefficient Standard error Coefficient Standard error Age _9 054 0 005 _0 044 0 004 Age squared 100 0Q 061 0 006 0 058 0 004 Female 0 047 0 020 0 049 0 019 Diploma trade 0 053 0 043 _0 126 0 030 qualification No post school O 115 0 034 _0 108 0 031 Health status _0 421 0 035 _0 261 0 035 Partnered Q 249 0 032 0 085 0 032 Single parent 0 094 0 066 _0 223 0 065 Employed 0 058 0 039 0 082 0 041 Unemployed _0 186 0 064 _0 679 0 089 Equivalised 0 001 0 000 0 005 0 000 income 000 pa Assets 0 025 0 010 0 085 0 010 cut1 3 841 0 192 1 692 0 134 cut2 3 557 0 170 1 372 0 126 cut3 _3 216 0 152 _1 008 0 126 cut4 _7 882 0 147 _0 683 0 122 cut5 2 585 0 149 0 395 0 126 cut6 _ 2 107 0 147 0 096 0 123 cut7 1 739 0 145 Q 497 0 122 cut8 _1 002 0 146 1 058 0 123 cut9 0 064 0 140 1 768 0 123 cut10 0 723 0 141 2 307 0 129 Reference Author s calculations based on HILDA 2010 survey data However debt is also likely to show a relationship with satisfaction as noted by Brown 2005 and Keese 2012 and this is expected to be negative It is reasonable to assume that if assets and debt are both associated with happiness then a person with 2 million in assets is probably go2. cut10 0 498 0 106 2 089 0 119 Reference Author s calculations based on HILDA survey data Housing wealth and debt The log value of owner occupied dwellings had a statistically significant positive association with both overall life satisfaction and financial satisfaction The relationship between financial satisfaction and the family home value is stronger than relationship with life satisfaction However there is no statistically significant relationship between the log value of other real property and life satisfaction It has a positive statistically significant relationship with financial satisfaction but the relationship is weaker than that with the family home Likewise the relationship between satisfaction and mortgage debt varies whether the mortgage is over the family home or other property Coefficients are negative for mortgage debt in both life and financial satisfaction However mortgages over other property do not have a statistically significant relationship with satisfaction The home mortgage has a negative and statistically significant association with both life and financial satisfaction and has a bigger association with financial satisfaction Note that the absolute value of the coefficients for home mortgage debt are less than those of the home mortgage Financial wealth and non property debt The log value of shares and savings do not have a statistically significant relationship wit
3. it is possible in cultures where home ownership is less common and rental accommodation more stable home values may have less of an impact on satisfaction Controlling for dwelling value a property is not as satisfying if it is an investment or holiday house instead of an owner occupied dwelling It is interesting that a mortgage over the family home is associated with lower satisfaction but a mortgage over another property is not This may be because interest on the latter is tax deductible and can be used as part of a wider investment strategy so it has less of an impact on the household budget 14 My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 All assets and debt types with the exception of other property mortgages had a larger and more statistically significant relationship with financial satisfaction than overall life satisfaction Interestingly while the value of savings had no significant relationship with overall life satisfaction savings had a stronger relationship with financial satisfaction than any other asset This may be because having a substantial asset in a very liquid form contributes to a feeling of financial flexibility and security compared to having wealth in risky or illiquid assets It may also be because savings can easily be used for consumption a holder of a large sum in cash savings has the optio
4. burdens Subjective vs objective measures of household debt Journal of Economic Psychology vol 33 pp 125 141 17
5. household debt values and u is the error term The log of assets and debt was used as the literature in this area suggests the relationship between wealth and satisfaction is curvilinear The vector of explanatory variables x includes age age squared divided by 1000 jhgage a dummy variable for females jhgsex dummy variables for highest qualification achieved university diploma or certificate no post school education jedhigh dummy variables for employment and unemployment jesdt long term health conditions as a continuous variable on a scale of 0 to 10 where 0 perfect health and 10 very poor health jhe th whether a person is partered married or de facto or unpartnered jmrcurr and if they are a single parent jhhtype In addition a variable for equivalised household disposable income is used This takes a HILDA measure of financial year income after tax jhifdi and divides it among members of the household where additional adults have a weighting of 0 5 and additional children have a weighting of 0 3 to account for the fact that the benefit of household income may be affected by the number of people it must be shared amongst My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 Results Prima facie happier people tend to have higher net wealth than sadder people Figure 1 shows mean net wealth by satisfaction w
6. NATSEM at the University of Canberra My Favourite Things the relationship between asset classes and satisfaction Marcia Keegan Rebecca Cassells Cathy Gong July 2012 Paper prepared for the 2012 Australian Conference of Economists PRESENTER Dr Marcia Keegan FOR National Centre for Social and Economic Modelling Canberra My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 Contents Paper prepared for the 2012 Australian Conference of Economists Abstract Introduction Data Measures of happiness Assets and debt considered Methodology Results Satisfaction by asset and debt type Housing wealth and debt Financial wealth and non property debt Discussion Conclusion o oO nH WN A A 13 13 13 15 My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 Boxes figures and tables Figure 1 Mean net wealth by financial and life satisfaction HILDA 2010 9 Table 1 Asset distribution of HILDA respondents Table 2 Debt distribution of HILDA respondents Table 3 Total assets and satisfaction 10 Table 4 Total assets total debt and satisfaction 11 Table 5 Conditional association between wealth types financial and life satisfaction 12 My Favourite Things the relationship between asset classes and satisfa
7. ares and savings held in bank accounts Also the debt classes of mortgages credit card debt and other personal debt are considered The impact of the value of these assets and debts on general life satisfaction and financial satisfaction are considered It finds that all asset types have a positive association with financial satisfaction and nearly all debt types have a negative association However only some asset and debt classes have an impact on general life satisfaction and there is considerable difference in the size of these effects Introduction The relationship between individual happiness and material wellbeing has been studied extensively in economics and psychology Much of the focus has been on the relationship between income and happiness or subjective wellbeing SWB although it appears that some researchers use the terms wealth and income interchangeably Biswan Deiner 2008 Findings have generally shown that there is a small positive association between income and SWB Cassells et al 2010 Cummins et al 2003 Guilbert and Paul 2009 however the results are mixed Brickman et al 1978 found that recent lottery winners were not substantially happier after their wins Some research suggests that that the relationship is minimal above levels at which income meets basic needs Ahuvia 2008 Hamilton 2003 Other research has found that relative income that is how much income a person receives relative to their peer gro
8. bt is associated with lower life satisfaction is not surprising the interest on credit card debt reduces the amount of disposable income available for consumption and credit card debt often regarded as bad debt by financial advisers as it is typically used to purchase consumption items that lose value very quickly Mortgage debt is associated with less dissatisfaction than credit card debt but owning one s home outright appears to be more satisfying than owning it with debt Mortgages also typically take up a large chunk of the homeowners income and it may make them vulnerable in the event of job loss Other debt shows a relationship with financial satisfaction but not life satisfaction It is difficult to draw conclusions from this as other debt is made up of a range of debt types We can draw from this that owning one s home may be satisfying financially and in general more so if it is debt free However if a person purchases a home with a mortgage the additional satisfaction they receive from owning a home more than offsets the loss of satisfaction from having a mortgage That is using a loan to buy a home may have a net positive effect on satisfaction For decades throughout Australian history before compulsory superannuation purchasing and paying off a house was a principal way of providing for one s retirement Cultural factors in favour of home ownership may contribute to the high satisfaction ratings of home ownership
9. ction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 This paper uses unit record data from the Household Income and Labour Dynamics in Australia HILDA Survey The HILDA Project was initiated and is funded by the Australian Government Department of Families Housing Community Services and Indigenous Affairs FaHCSIA and is managed by the Melbourne Institute of Applied Economic and Social Research Melbourne Institute The findings and views reported in this paper however are those of the author and should not be attributed to either FaHCSIA or the Melbourne Institute Abstract Many studies have been dedicated to studying the relationship between material wellbeing and life satisfaction Broadly speaking much of the research finds that higher levels of income and higher levels of wealth are weakly associated with life satisfaction While some studies separately consider the impact of for example home ownership or debt little existing research considers the relationship between satisfaction and the type of wealth held and any associated debt This paper uses the 2010 Household Income and Labour Dynamics in Australia HILDA Survey to assess whether certain types of assets or debt are more strongly associated with life satisfaction than others focusing on the most widely held asset and debt types Broadly speaking the asset classes considered are the family home other real property superannuation sh
10. ds reported lower levels of psychological distress than those with nonzero debt Brown et al 2005 however perceived and actual debt burdens vary by gender expenses income and expected future income Keese 2012 That wealth should be associated with happiness is sensible as wealth is capable of generating income through capital gains an income stream or offsetting expenses An owner occupied dwelling offsets rent another property creates a rental income stream shares provide dividends savings provide interest and all except the last provide the opportunity for capital gain There is an intuitive appeal to the idea that wealth is more important to happiness than income Firstly wealth is inclined to be more stable than income a home a share portfolio or a large savings account are much less likely to completely disappear in a short period of time than the income from employment Secondly the income stream potential capital gains or store of value assets provide can act as a buffer against the risk of an unfortunate life event unemployment or disability are less dreadful if assets can be drawn upon Thirdly as well as providing an income stream or store of value some assets provide other utility The sentimental value of owning one s own home is usually far greater than the value of avoided rent a holiday home renovated by its owner is much more satisfying to visit than rented accommodation and some assets such as art or collectibl
11. dual or the household A couple family will typically hold the family home in the names of both members of the couple and other property may be treated the same way even if only one spouse s salary contributes to the mortgage payments Shares and savings accounts may be held by one member of a couple or both Superannuation in the contributions phase always accumulates to the individual who earns the income However even if an asset is legally owned by one member of the household only the benefits are often shared Older teenagers who are surveyed in HILDA on their satisfaction levels receive the benefit of living in their parents house and income from financial assets may be spent on them in ways that improve their life satisfaction A married or partnered person might reasonably expect that their spouse s superannuation will assist in supporting them in retirement Because the benefits of wealth and burdens of debt are likely to be shared to a substantial extent among household members we will consider the impact of the total household s wealth on the individual s satisfaction Assets and debt considered HILDA asks questions about a broad range of assets Not all of them can be feasibly modelled in this paper as some classes of assets are only owned by a very small number of people Also some assets might be considered consumer items rather than assets in the financial sense for example cars and household durables these are purcha
12. ect of capital gains and removing the need to pay rent plus the sentimental value of having one s own home to enjoy decorate and use as one sees fit Savings is strongly associated with financial satisfaction but not associated with general life satisfaction suggesting that the financial security associated with cash savings does not flow over into more general satisfaction 15 www natsem canberra edu au References ABS 2011 Household Wealth and Wealth Distribution Australia 2009 2010 Cat no 6554 0 Australian Bureau of Statistics Canberra Ahuvia A 2008 If money doesn t make us happy why do we act as if it does Journal of Economic Psychology vol 29 pp 491 507 Biswan Deiner R M 2008 Material Wealth and Subjective Well being in The Science of Subjective Well being Eid M and Larsen R J eds Guildford Publications New York pp 307 322 Brickman P Coates D and Janoff Bulman R 1978 Lottery Winners and Accident Victims Is Happiness Relative Journal of Personality and Social Psychology vol 36 no 8 pp 917 927 Brown S Taylor K and Price S W 2005 Debt and distress Evaluating the psychological cost of credit Journal of Economic Psychology vol 26 pp 642 663 Cassells R Gong C and Keegan M 2010 The pursuit of happiness life satisfaction in Australia AMP NATSEM Income and Wealth Report no 26 Sydney Clark A E and Oswald A J 1996 Satisfaction and Com
13. es provide an engaging hobby as well as a way to potentially turn a profit Data The data for this research is taken from the 2006 and 2010 Household Income and Labour Dynamics in Australia HILDA Survey Waves 6 and 10 This survey was first collected in 2001 and has run for ten waves In 2002 2006 and 2010 a special survey on wealth was collected For this research we have focused on respondents aged 15 a total of 6410 males and 7109 females A total of 6913 households are represented My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 Measures of happiness For this research we have focused on responses to two questions in the HILDA survey The first which is used as a measure of general or overall satisfaction is All things considered how satisfied are you with your life Again pick a number between 0 and 10 to indicate how satisfied you are The second which is used as a measure of how satisfied a person is with their finances asks users how satisfied or dissatisfied they are with their financial situation In both cases the responses are given on a scale of 0 to 10 where 0 is totally dissatisfied 5 is neither satisfied nor dissatisfied and 10 is totally satisfied In HILDA happiness or life satisfaction is recorded at the individual level but assets and debts can be owned by the indivi
14. faction financial situation Coefficient Standard error Coefficient Standard error Age _0 055 0 005 _0 039 0 004 Age squared 100 Q 060 0 006 0Q 048 0 005 Female 0 048 0 020 0 053 0 019 Diploma trade 0 063 0 041 _0 077 0 029 qualification No post school 0 121 0 033 0 055 0 030 Health status 0 414 0 034 _0 233 0 036 Partnered 0 256 0 033 O 114 0 034 Single parent 0 092 0 068 _9 214 0 069 Employed 0 035 0 037 0 142 0 036 Unemployed _0 176 0 067 _0 623 0 097 Equivalised 0 001 0 000 0 004 0 001 income Family home Q 014 0 004 0 018 0 004 Superannuation 0 005 0 005 0 008 0 005 Savings 0 000 0 006 0 073 0 007 Shares 0 003 0 002 0 011 0 003 Other real 0 004 0 004 0 011 0 003 property Home mortgage _0 009 0 003 _0 012 0 003 Other property 0 004 0 005 0 006 0 006 mortgage Credit card debt _0 009 0 004 _0 039 0 004 Other debt 0 004 0 003 _0 016 0 003 cut1 _A 085 0 162 _2 069 0 124 cut2 _3 800 0 143 _1 740 0 118 cut3 _3 457 0 118 _1 361 0 122 cut4 _3 121 0 111 _1 023 0 118 cut5 _2 823 0 114 _0 723 0 122 cut6 _D 343 0 113 0 213 0 120 cut7 _1 972 0 113 0 206 0 117 cut8 _1 232 0 112 0 794 0 119 12 My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 cut9 _0 291 0 106 1 533 0 116
15. h overall life satisfaction but they do have a positive relationship with financial satisfaction Dollar for dollar savings has the strongest association with financial satisfaction with a coefficient more than four times the value of that of the family home Superannuation had no impact on life satisfaction and only a small barely statistically significant impact on financial satisfaction Credit card debt has a much stronger negative relationship with financial satisfaction than debt secured over real property and has a negative relationship with overall life satisfaction Other debt while having a negative and statistically significant association with financial satisfaction has less of an impact than credit card debt and has no significant association with life satisfaction Discussion Although some analysis has been conducted on the relationship between wealth and satisfaction to the author s knowledge none has tried to isolate the relationship between asset class and happiness It also compares the asset s association with life satisfaction and financial satisfaction 13 My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 Of the five asset and four debt classes considered in this analysis only one asset type and two debt types had a statistically significant relationship with life satisfaction namely the family ho
16. ing to be happier if these assets are owned outright than if those assets are accompanied by 1 5 million in debt While estimating the relationship between net wealth and satisfaction seems intuitive the fact that this model uses log values means that this method would not incorporate the association with negative net wealth ie debts exceed assets Rather than exclude households with negative net assets an ordinal probit with log assets and log debt as explanatory variables was used Table 4 shows the results 10 My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 Debt is negatively associated with both life satisfaction and financial satisfaction It is Statistically significant at the 99 level of confidence in both cases although the relationship with financial satisfaction is larger Incorporating debt into the equation increased the coefficients for total assets slightly The coefficient for assets in both models is around three times larger than that for debt however this does not mean that taking out a 100 loan to buy an asset resulting in equivalent increases in both assets and debt will be associated with greater levels of happiness These models consider the log of assets and debt and since most households have more assets than debt an increase in debt of 50 000 will have more of an impact on the logged value of househ
17. ith life in general and satisfaction with financial situation without controlling for other factors that are known to be associated with satisfaction levels There is a positive relationship between both life satisfaction and financial satisfaction and mean net wealth As one might expect net wealth has a stronger relationship with financial satisfaction than general life satisfaction People who rate their life satisfaction as a 9 or 10 out of ten are not much wealthier than those who rate 7 or 8 but people who rate their satisfaction with their financial situation as 9 or 10 are much wealthier than those at 7 or 8 On average people were happier with their lives in general rather than their finances The median life satisfaction score was 8 while the median financial satisfaction level was 7 The averages differed slightly between sexes with women being slightly happier with their lives overall than men 7 89 vs 7 85 Average satisfaction with financial situation was 6 38 for men and 6 39 for women Figure 1 Mean net wealth by financial and life satisfaction HILDA 2010 1600 1400 1200 1000 800 E Life 600 ee p E Financial situation 400 _ Ww Q i e V lt v z v c c w 200 4 5 6 Satisfaction Reference Author s calculations based on HILDA survey data Table 3 shows the relationship between the log value of total assets and overall life satisfaction and satisfaction with one
18. me the associated mortgage and credit card debt The value of the family home had the strongest relationship Savings superannuation shares other debt other real property and associated mortgages had no statistically significant association with life satisfaction These findings are perhaps not surprising the family home provides threefold benefits It not only offsets rental expenses and provides the opportunity of capital gain it also holds sentimental value In contrast savings shares and investment properties while they are important financial assets do not represent a cornerstone of a person s lifestyle The comparatively minor relationship between superannuation and life or financial satisfaction was an interesting finding as it is one of the most widely held assets and the second largest in value after the family home It may be that superannuation has a weak association with satisfaction because for most respondents it cannot be accessed for years if not decades and so does not provide the prospect of income or any other utility in the short to medium term This may be important from a policy perspective as if a healthy superannuation balance gives no satisfaction to a 40 year old they may be inclined to invest or spend money outside of the superannuation system Of the four debt types considered the two that can never be tax deductible are the two that have a negative relationship with life satisfaction That credit card de
19. n of a luxurious lifestyle for some years compared to a person who has the same amount of wealth tied up in a house or superannuation Finally it must be remembered that this survey was conducted in the second half of 2010 when financial markets were looking shaky and the possibility of a double dip recession was at the forefront of investors minds It is possible that some holders of large sums of cash may have converted other assets to cash before the crisis and as a result felt very satisfied with their financial ingenuity Conclusion This analysis considers the relationship between total asset wealth and debt and life satisfaction and satisfaction with one s financial situation It then considers the association between five major asset classes and four debt classes on life satisfaction and financial satisfaction using Wave 10 of the Household Income and Labour Dynamics in Australia Survey using a panel data regression The findings confirm previous studies which identified a weak but statistically significant positive relationship between wealth and satisfaction or subjective wellbeing and a negative relationship between debt and satisfaction with unsecured debt having a stronger effect Of all the assets the family home has the strongest association with life satisfaction and the second strongest association with financial satisfaction The family home provides benefits in three ways financial benefits through the prosp
20. ncial satisfaction are positively associated with household asset values and negatively associated with household debt This confirms earlier research from Australia and overseas on the relationship between assets debt and satisfaction My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 Satisfaction by asset and debt type The next stage of this paper assesses how relationships between satisfaction and various asset and debt classes differ As discussed in the introduction the correlation between debt and life satisfaction varies depending on the type of debt held with some research finding that unsecured debt is detrimental to satisfaction while secured debt has no effect The nature of the assets under consideration is that while all can be considered stores of value some assets simply provide an income stream some provide the prospect of capital gains some are extremely liquid and others not so and others have intrinsic benefit in addition to their financial benefits Table 5 examines this further by modelling the relationship between major asset and debt classes financial satisfaction and life satisfaction Table 5 Conditional association between wealth types financial and life satisfaction Overall life Satisfaction with satis
21. old debt than an increase in assets of 50 000 will have on the logged value of total assets Table 4 Total assets total debt and satisfaction Overall life Satisfaction with satisfaction financial situation Coefficient Standard error Coefficient Standard error Age _9 054 0 005 _0 042 0 004 Age squared 100 Q 059 0 006 0 051 0 004 Female 0 048 0 020 Q 053 0 018 Diploma trade 0 050 0 043 0 139 0 031 qualification No post school 0 112 0 034 0 122 0 032 Health conditions _0 419 0 034 _0 253 0 035 Partnered 0 261 0 033 O 125 0 033 Single parent 0 091 0 066 _0 211 0 067 Employed 0 041 0 039 0Q 143 0 038 Unemployed _0 178 0 065 _0 659 0 092 Equivalised 0 001 0 000 0 005 0 001 income 000 pa Total assets 0 032 0 010 0 109 0 010 Total debt 0 011 0 003 _0 039 0 004 cut1 _3 850 0 191 1 727 0 133 cut2 3 567 0 170 1 404 0 126 cut3 3 226 0 152 1 035 0 125 cut4 _7 891 0 147 _0 708 0 121 cut5 _7 593 0 149 _0 416 0 125 cut6 _7 114 0 146 0 081 0 122 cut7 1 745 0 144 Q 486 0 121 cut8 _1 007 0 145 1 054 0 122 cut9 0 069 0 139 1 773 0 123 cut10 Q 719 0 140 2 320 0 129 Reference Author s calculations based on HILDA 2010 survey data The first two tables have shown that in Australia in 2010 life satisfaction and fina
22. ome Bank Equities Superannuation Other real accounts property Mean value 378 36 38 92 37 35 143 74 125 99 000s owning 63 80 97 59 34 05 80 84 20 25 asset Mean value 364 9 32 9 22 3 115 9 136 4 000s ABS Reference Author s calculations based on HILDA 2010 survey data ABS 2011 Table 2 Debt distribution of HILDA respondents Home mortgage Other property Credit card debt Other personal mortgage debt Mean value 86 28 34 64 1 84 16 27 000s owing debt 34 74 9 87 26 85 34 78 Mean value 68 4 36 6 2 6 10 2 000s ABS Reference Author s calculations based on HILDA 2010 survey data ABS 2011 The assets that made up the greatest share of gross household worth were the family home other real property and superannuation Around two thirds of households owned their home worth an average in the high 300 000s and around one third of these households owned it with a mortgage More than 80 percent of households reported having some money in superannuation with an average amount of 143 000 ABS data suggests that other real My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 property represents a greater share of household wealth than superannuation but fewer households own other real property Almost all households held bank accounts around a third owned shares and just o
23. parison Income Journal of Public Economics vol 61 pp 359 381 Cummins R A Eckersley R Lo S K Okerstrom E Hunter B and Davern M 2003 The Wellbeing of Australians 1 Personal Finances 2 The Impact of the Bali Bombing Australian Unity Wellbeing Index Survey Report no 5 Australian Unity Melbourne http www deakin edu au research acqol auwbi survey reports survey 005 report pdf Guilbert D and Paul S 2009 Income and Happiness An Analysis of Adaptation and Comparison Income Effects HILDA Survey Research Conference Melbourne 16 17 July Hagerty M R 2000 Social comparisons of income in one s community Evidence from national surveys of income and happiness Journal of Personality and Social Psychology vol 78 no 4 pp 764 771 Hamilton C 2003 Growth Fetish Allen amp Unwin Crows Nest NSW My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 Heady B and Wooden M 2004 The Effects of Wealth and Income on Subjective Well Being and Ill Being The Economic Record vol 80 pp 24 S33 Heady B Muffels R and Wooden M 2004 Money Doesn t Buy Happiness Or Does It A Reconsideration Based on the Combined Effects of Wealth Income and Consumption IZA Discussion Paper Series No 1218 Institute for the Study of Labor Bonn Keese M 2012 Who feels constrained by high debt
24. s j hwegqini e Superannuation All household superannuation accounts including government private and self managed whether in the accumulation or pension phase j hwsupei e Other real property real estate that is not owner occupied for example holiday homes rental properties or commercial premises hwopvai e Home mortgage outstanding principal on the mortgage secured over the family home hwhmdti e Other property mortgage outstanding principal on the mortgage secured over other real property hwhopdti e Credit card debt Amount owing on all credit cards in household including joint cards note that a number of respondents who regularly pay off their card every month reported themselves as having no credit card debt underestimating total debt jhwccdti e Other personal debt includes other loans taken out by a household including car loans personal loans investment loans amount owing under hire purchase agreements and overdue bills but not HECS or credit card debt jhwothdi Table 1 shows the percentage of households in the survey who reported holding each asset and the mean value of the asset for those that owned it The third row shows the mean values of each asset from the Australian Bureau of Statistics ABS 2011 for comparison Likewise Table 2 shows similar information for debts held by households responding to HILDA Table 1 Asset distribution of HILDA respondents Family h
25. s financial situation controlling for other personal characteristics There were no surprises in the relationship between satisfaction and other personal characteristics Age showed a negative relationship while age squared showed a positive relationship Being female was positively associated with higher levels of happiness People with lower levels of education tended to show higher levels of overall life satisfaction but lower levels of financial satisfaction possibly due to the lower job security and wages associated with lower skill jobs Long term health conditions were associated with lower life My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 and financial satisfaction Employment had a positive association with financial satisfaction but not life satisfaction In contrast unemployment has a strong statistically significant negative association with both life satisfaction and financial satisfaction Equivalised household income in thousands of dollars per year has a small positive and statistically significant relationship with life satisfaction and a stronger relationship with financial satisfaction The value of total assets has a significant positive relationship with overall life satisfaction and a much greater relationship with satisfaction with one s financial situation Table 3 Total assets and satisfaction
26. sed solely for consumer use with no prospect of an income stream or capital gain from the asset For this reason this paper focuses on five types of assets bank accounts superannuation shares the family home owner occupied home and other real property investment properties or holiday homes These were chosen because at least 20 percent of surveyed households owned this class of asset Other assets reported in HILDA such as business assets collectibles and trust funds were owned by less than 20 percent of households The types of debt focused on were home mortgage debt other real property mortgage debt credit card debt and other personal debt Other debts such as business debt and HECS were not considered as less than 20 percent of households held that form of debt an exception was made for investment property debt as investment properties were included in assets The assets and debts modelled are listed below along with a brief definition and the HILDA variable name in brackets e Family home the owner occupied dwelling in which the household resides hwhmvai e Bank accounts all savings and transactions accounts with financial institutions including joint accounts jhwtbani My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 e Equities Shares the value of shares in businesses excluding own incorporated busines
27. up as opposed to the absolute amount is more closely related to life satisfaction Cassells et al 2010 Clark and Oswald 1996 Hagerty 2000 My Favourite Things the relationship between asset classes and satisfaction NATSEM Paper prepared for the 2012 Australian Conference of Economists July 2012 More recently the availability of extensive household surveys has allowed the correlation between self reported happiness or life satisfaction and wealth to be considered Heady and Wooden 2004 analysed the relationship between overall life satisfaction and satisfaction with one s financial situation using 2002 HILDA data and found that wealth was at least as important as income in a person s satisfaction with their life and finances A study of panel data from Australia Britain Germany Hungary and the Netherlands Heady et al 2004 found that the association between wealth and life satisfaction is stronger than the association between income and satisfaction However although Brown et al 2005 found that regular savers were less likely to report psychological distress than non savers they did not find any relationship between psychological wellbeing and other assets The relationship between debt and satisfaction is a complex one Debt is simply consumption brought forward which must be paid for with future income Higher levels of non mortgage debt are associated with poorer levels of wellbeing and that debt free persons and househol
28. ver one fifth owned other real property Fewer debt classes than asset classes were surveyed in HILDA A similar method of selecting debts for analysis was used any debt class held by more than 20 percent of households was included in the analysis For this reason business debts and HECS debts were excluded However mortgages over other property were included despite fewer than ten percent of households holding such debts because it would be misleading to consider the impact of other real property on assets without taking into account associated debts Methodology The analysis uses a series of ordinal probit models to determine the relationship between various forms of wealth and happiness with the satisfaction variable as the dependent variable This model was estimated with survey data analysis techniques using the jackknife method Equation 1 shows the form of the model used to estimate the relationship between assets debt and satisfaction The probability that the individual j will give themselves the satisfaction score corresponds to the probability that the linear function shown in Equation 1 plus a random error term is within the range of the cutpoints estimated for that particular level of satisfaction Equation 1 Pr outcome i Pr nj_ 1 lt Pix B2In a B3In d j uj lt ni where x is a vector of individual characteristics a is a vector of the individual s household asset values d is a vector of individual s
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