The pursuit of happiness: does wealth play a role for life satisfaction?

Presenter: Tobias Schmidt, Deutsche Bundesbank

We empirically investigate the relationship between life satisfaction and wealth holdings. Wealth determines to a large degree a person’s consumption opportunities and economic situation, which should in turn affect well-being. However, literature on wealth and well-being is scarce. We contribute to this literature using panel micro-data from the German Wealth Survey (“Panel on household finances -PHF”) for 2010 and 2014. The PHF is a representative survey dedicated to measuring private households’ wealth at a very detailed level. It allows us to test the following hypotheses empirically using regression models: (i) individual life satisfaction is positively associated with a household’s wealth holdings; (ii) the relationship between life satisfaction and wealth is weaker in areas with a high share of wealthy or high income households; (iii) different types of wealth, such as real and financial assets, have differential effects on life satisfaction. We find that a household’s wealth is statistically significantly and positively related to life satisfaction. Furthermore, our results indicate that the relationship between life satisfaction and wealth is weaker in high income and high wealth areas compared with less wealthy areas. We also show that a household’s financial wealth seems to be more important for an individual’s life satisfaction than real assets.