Understanding Personal Savings Behaviour Through the Lens of Subjective Well-Being

Abstract

The intersection of subjective well-being and savings is a dynamic, growing field. As new research methodologies, insights, and perspectives emerge, there is a growing understanding of the complex linkages between financial choices and levels of subjective well-being. However, the existing literature on this relationship has either relied primarily on a unified approach or a unidirectional relationship, focusing on general measures of satisfaction and observing mostly positive associations. This thesis, using large UK panels, aims to extend the current understanding by adopting a more nuanced approach, examining the relationship between subjective well-being and savings behaviour through different satisfaction domains and across retirement status and gender.

The thesis is divided into three chapters. Chapter 1 provides a comprehensive literature review, establishing the context for subsequent analysis. It explores current knowledge on personal savings behaviour, subjective well-being levels, and related factors. The chapter critically examines existing research methodologies and findings, highlighting the need for a more holistic approach to studying the subjective well-being-savings nexus.

Chapter 2 investigates the role of different satisfaction domains in personal savings behaviour, moving beyond the uniform approach of using general satisfaction measures. Employing a novel two-layer model of well-being based on the work of Van Praag et al. (2003), this study uses fixed effects regression to investigate how health, income, job, and leisure time satisfaction relate to savings. Findings reveal that while general satisfaction is positively associated with savings, relationships vary across domains, with income and job satisfaction showing positive associations and health and leisure time satisfaction exhibiting negative associations. This highlights the importance of a multidimensional approach in understanding the complex interplay between subjective well-being and financial decision-making.

Chapter 3 explores gender differences in the relationship between overall subjective well-being and pre- and post-retirement savings using an instrumental variable approach. This study addresses potential endogeneity concerns by utilising sleep quality and energy level indicators as instruments for subjective well-being. It provides evidence of the subjective well-being-savings relationship between different demographic groups. Results indicate a significant positive association with savings for non-retired women but not for men, emphasising the importance of gender-specific factors in financial decision-making.

This thesis contributes to the growing field of behavioural economics by considering subjective well-being as a potential explanatory variable, not just an outcome, of savings behaviour and advancing the use of subjective well-being data in economic research. It illuminates how British citizens' savings behaviour relates to changes in well-being levels from 2004 to 2019. It also emphasises the need to differentiate between satisfaction domains and different demographic groups in savings behaviour studies, demonstrating the inadequacy of a uniform approach in well-being studies in economics.