Context

The study is inspired by the Swedish concept of “lagom” – “just the right amount” – and how financial situations might relate to overall life satisfaction. While international rankings show a correlation between wellbeing and higher incomes, differences in savings ratios might influence that result.

The study

The study considered the relationship between aspects of household financial circumstances and reported life satisfaction in the UK. It undertook econometric analyses of UK Household Longitudinal Survey (UKHLS) data gathered between 2010 and 2018, covering 30,000 households. The resulting analysis was supplemented by a survey of 4,002 adults across the UK.

Key findings

• According to UKHLS data, on a scale of 1 (“completely dissatisfied”) to 7 (“completely satisfied”) 57% of UK households reported they were “completely” or “mostly” satisfied with life, while 15% were not.
• There is a positive relationship between satisfaction and the . Those who saved less than 2% had an average satisfaction score of 5.07, while those who saved over 10% had an average of 5.5. Regression showed that a 10 percentage point increase in the monthly savings ratio increased the probability of reporting a high satisfaction score (a score of 6 or 7) by 1.4 percentage points (rising to 2.6 percentage points for those aged under 35). This suggests a similar effect to reporting better health. The effect appears to be stronger for sustained saving (4.3 percentage points).
• The relationship between household income and life satisfaction is positive and increases steadily to a of about £4,000, after which the rate of increase slows, which indicates that proportional increases to income are more closely linked to life satisfaction than absolute increases. The effect is also not as strong as that of savings ratios.
• also appears to have a stronger effect than income. Opening a savings account increases the probability of a high life satisfaction score by 1.3 percentage points, rising to 6.2 over the longer term. Each additional savings product type of savings product held increases that probability by 1.1 percentage points, and 2.8 in the long run.
• is significantly correlated with overall life satisfaction more than household income. Those who felt they were “living comfortably” or “doing alright” were 11 percentage points more likely to report high life satisfaction.
• Those aged 35-54 were the least satisfied (average score of 5.05), while those 55 and over were most satisfied (5.38). People in the South West (5.29), the East of England (5.28) and Northern Ireland and the South East (5.27) were the most satisfied, in contrast with those in London (5.06), the West Midlands (5.17) and Yorkshire and the Humber (5.19). The study suggests that this may be related to comparative levels of spending on housing, recreation and culture.
• The follow-up survey found that few respondents considered themselves wealthy (7%). 11% of those aged 18-34 considered themselves wealthy, while only 5% of those over 55 did.
• There were stronger correlations between life satisfaction and quality of home life (0.78) and social life (0.72) than with financial situation (0.65) and job (0.59), suggesting that money is not the most important factor.
• The report concludes that finding a balance between enjoying a current good quality of life now and saving for future goals can improve perceptions of life satisfaction.

Points to consider

• The report gives little indication of confidence levels.
• The problem of identifying causation in correlations might be addressed more clearly.
• A clearer summary of the link between saving and happiness would be useful.

• The study provides useful perspectives on the balance between income, savings, wealth and wider happiness.

• The study provides a useful model for further investigation across and within the UK.