My favourite things: the. and satisfaction. Marcia Keegan Research Fellow 23 March 2012

Transcription

1 My favourite things: the relationship between asset classes and satisfaction Marcia Keegan Research Fellow 23 March 2012

2 Which people are happy? Young (late teens/early 20s) and older people Good health Partnered Employed happier than unemployed Working part-time instead of full-time Living in the country 2

3 Economic resources and satisfaction Money can t buy happiness, but it can buy a better standard of misery Most international research shows that money can buy happiness that is, people with more money tend to be happier 3

4 From an international perspective the 2005 Happy Planet Index $70,000 G D P p er cap ita ($U S, PPP) $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 Tanzania Portugal Luxembourg Costa Rica Australia $ Average life satisfaction out of 10 4

5 Income and happiness within countries Numerous international studies show that income has a weak but positive and statistically significant relationship with life satisfaction The economic theory of diminishing marginal utility of income holds true in happiness surveys Higher incomes allow for higher consumption, a better standard of living, more opportunities for careers, life and leisure, greater ability to weather life shocks Social comparison may also have an impact; a person s income in relation to the average of their peer group also has an impact on life satisfaction 5

6 Life Satisfaction $000s Disposable household income From HILDA Annual household incomes higher than $ were not included due to topcoding. 6

7 Wealth and happiness With greater availability of detailed survey data, more research has been conducted on the relationship between happiness and other forms of material wellbeing, including wealth and consumption Previous international research suggests that the relationship between wealth and happiness is stronger than the relationship between income and happiness 7

8 Data Household, Income and Labour Dynamics in Australia Survey, 2010, Wave 10 Sample for this research included respondents 15 and over 6410 males and 7109 females in a total of 7310 households 8

9 Individual happiness, household wealth? Satisfaction is measured in individuals, while wealth can be measured at the individual, couple or household level Some forms of household wealth predominantly affect the individual (eg savings accounts, superannuation) while the benefits of other forms of wealth predominantly affect the entire household (eg owner-occupied dwellings This analysis focuses on household wealth and individual happiness 9

10 Types of wealth considered Real property Owner occupied dwelling Other real property Financial assets Superannuation Savings (bank deposits) Shares Debt Home mortgage Other property mortgage Credit card debt Other personal debt 10

11 Assets of households, HILDA Wave 10 Family home Bank accounts Equities Superann uation Other real property Mean value ($000s) % owning asset Mean value ($000s) (ABS) Reference: Author s calculations based on HILDA survey data, ABS Household Wealth and Wealth Distribution (2011). 11

12 Debts of households, HILDA Wave 10 Home mortgage Other property mortgage Credit card debt Other personal debt Mean value ($000s) % owing debt Mean value ($000s) (ABS) Reference: Author s calculations based on HILDA survey data, ABS Household Wealth and Wealth Distribution (2011). 12

13 Measures of happiness HILDA asks respondents to state how satisfied they are with a number of aspects of their lives, on a scale of 0 to 10, where 0 = extremely dissatisfied and 10 = extremely satisfied This research focuses on two measures: Satisfaction with life as a whole Satisfaction with one s financial situation These measures are the most relevant to a person s wealth status 13

14 Most respondents are pretty satisfied with their life Density K13 Satisfaction - Your financial situation Density K14 How satisfied are you with your life but not so satisfied with their financial situation 14

15 7.6 Life Satisfaction $000s Gross household wealth From HILDA Annual gross household wealth higher than $7 million not included due to topcoding. 15

16 Net wealth, financial satisfaction and life satisfaction th ($000s) Mean net wealt Life Financial situation Satisfaction Reference: Author s calculations based on HILDA 2010 survey data. 16

17 Methdology An ordinal probit model was used to determine the relationship between wealth and satisfaction (dependent variable) Due to the curvilinear relationship between wealth and satisfaction, the log of assets and debt were used as explanatory variables Other variables used were age, sex, partnership status, single parenthood, health, employment and equivalised income 17

18 Results: assets, debt and satisfaction Overall life satisfaction Satisfaction with financial situation Coefficient Standard error Coefficient Standard error Age *** *** Agesquared/100 *** *** Female ** *** Diploma/trade *** qualification No post-school *** *** Health status *** *** Partnered *** *** Single parent *** Employed *** Unemployed *** *** Equivalised *** *** income Total assets *** *** Total debt *** ***

19 Effect of assets and debt As we would expect, assets are positively associated with life satisfaction and financial satisfaction, while debts are negatively associated with financial and general satisfaction Wealth and debt has a stronger association with financial satisfaction than overall satisfaction This relationship exists even when income is controlled for Do certain types of assets have a stronger impact on satisfaction than others? 19

20 Why do we have assets? Potential capital gain Shares, real property, collectibles Income stream (or offsetting expenses) Shares (dividends), real property (rent or offsetting rental expenses), savings (interest) Store of value Collectibles, real property, gold, jewellery Sentimental or use benefits Own home, collectibles, vehicles, jewellery Because different assets have different benefits, some assets may provide more satisfaction than others 20

21 Overall life satisfaction Satisfaction with financial situation Coefficient Standard error Coefficient Standard error Age *** *** Age-squared/100 *** *** Female ** *** Diploma/trade ** qualification No post-school *** * Health status -*** *** Partnered *** *** Single parent *** Employed *** Unemployed ** *** Equivalised *** *** income Family home *** *** Superannuation * Savings *** Shares *** Other real *** property Home mortgage ** *** Other property mortgage Credit card debt ** *** Other debt ***

22 Financial satisfaction Savings had the strongest effect on financial satisfaction, followed by wealth in the family home, shares and other real property were equal third Superannuation wealth, although being the second- largest wealth store, was barely statistically significant Credit card debt had the biggest impact on financial satisfaction, followed by other debt, then the home mortgage. Mortgages over other real property not significant. 22

23 Life satisfaction All assets had a positive impact, all debt had a negative impact, though not all statistically significant Family home was the only store of wealth that was statistically significant The home mortgage and credit card debt had similar negative and significant impacts on happiness 23

24 Discussion Family home has a big impact on satisfaction threefold benefits in capital gain, rental offset and sentimental or use benefits Having cash aside for a rainy day people made people very pleased about their finances, but had no impact at all on life in general Superannuation has little to no impact because it is inaccessible for so many, it almost doesn t exist? Shares and other real property had similar impacts 24

25 Discussion Tax deductible debt has less of an impact than nondeductible debt Credit cards and home mortgages reduce both life and financial satisfaction Mortgages over other property have no impact on either form of satisfaction part of a specific financial strategy? Other debts may be deductible or not, may be secured or not 25

26 The Paradox of Bliss This research and most existing research shows that there is a positive, small and significant relationship between life satisfaction and financial resources Money does buy happiness! BUT.. In most measures of financial resources vs. happiness, people who give themselves a 10 out of 10 for happiness are worse off than people who give themselves a 9 out of 10 26

27 From AMP report 26 Median equivalised household income by happiness Difference between own median equivalised HH income and mean of peer group 27

28 From earlier in the presentation th ($000s) Mean net wealt Life Financial situation Satisfaction Reference: Author s calculations based on HILDA 2010 survey data. 28

29 The Paradox of Bliss why? Used a subsample of HILDA everyone who scored 9 or 10 out of 10 in general life satisfaction Created a dummy variable bliss ; =1 if life satisfaction = 10, else = people scored 9, 1536 scored 10 in Wave 10 Results were surprising so surprising that a similar result was estimated for the 2006 HILDA for comparison 29

30 Results Coefficient Standard error Coefficient Standard error Age ** Age-squared/ ** Female Diploma/trade qualification *** *** No post-school *** *** Health status Partnered * Employed ** *** Unemployed Equivalised income Assets *** *** Debt Constant

31 Why is this? People who live simpler lives are happier? Less intelligent people didn t understand the question? Less wealthy/educated people have less ambition or drive to further themselves?????? 31

32 Conclusions Asset type and debt type, as well as total assets and debt, have a statistically significant impact on satisfaction Family home and savings have big effects Tax-deductible debt has less of an impact than nondeductible debt Once a person is already pretty well-off, there may be merit in backing off a little and smelling the roses 32

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