Wealth Changes and Their Impact on Subjective Well-Being

Abstract

Besides income, wealth plays an important role for the economic situation as well as the satisfaction of persons. So far the relationship between income as a flow measure and subjective well-being (SWB) is widely described. However, research in the connection between wealth and subjective well-being is scarce. This is predominately due to a lack of adequate microdata. In this paper we make use of longitudinal data from the German Socio-economic Panel (SOEP), as this survey provides individual information on wealth as well as on general life satisfaction (GLS) measured on an 11-point scale. The aim of this paper is to show the relation between wealth changes and SWB. This is done by simple descriptive analyses as well by fixed effect regression models for net worth and wealth components. We find that net worth changes have a significant positive effect on SWB. We estimate an effect size of a 0.045 points increase in SWB for a one percentage change in net worth over a period of 5 years controlling for income and other individual characteristics as well as time-constant individual-specific heterogeneity. We also find similar effect sizes for various asset types and significant negative effects for consumer debt. Our analyses show that wealth is not only an important material resource which can buffer negative life-events, but has an additional independent impact on SWB.