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Financial Satisfaction in Old Age: A Satisfaction Paradox or a Result of Accumulated Wealth?

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Abstract

Prior research consistently has found that older adults, despite low incomes, are more financially satisfied than younger adults. This “satisfaction paradox” is typically attributed to elders’ supposed psychological accommodation to poor financial circumstances. We advance a different explanation, one that focuses on substantial age differences in wealth and liabilities. Data are from the first wave of the Norwegian NorLAG study (n = 4,169). Findings support the hypothesis that an examination of a wider range of economic variables shows that material circumstances are more important to the financial satisfaction of the elderly than previously believed. A considerable part of the higher financial satisfaction with increasing age can thus be explained by greater assets and less debt among the aged. Nonetheless, assets and debt do not mediate this relationship at lower incomes, because older people with little income have very little accumulated wealth. As older people with little income and wealth have a much stronger tendency to be financially satisfied than their younger, equally poor counterparts, an “aging paradox” still remains in this field.

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Notes

  1. We avoid at least three problems associated with the use of household level economic data. First, we avoid the problematic choice of whether and how to adjust household income for household composition, choices that typically lead to divergent conclusions when comparing the resources of the elderly and nonelderly (Quinn 1987). Second, we avoid the controversial premise that all household members get an equal share of available resources (Radner 1992). Third, “given the comprehensive nature of total family income, an individual reporting his/her psychological well-being may not be consciously aware of the totality of income received from all sources and thus not be able to express a sense of psychological well-being reflective of the total family income reality” (Mullis 1992, p. 124). However, the typical assumption in the literature is that financial satisfaction is more closely related to the monetary resources available to the household as a whole than to the individual personally. This assumption deserves further investigation because the literature has not yet concluded which income is the better predictor of financial satisfaction (Hsieh 2001). Although Rojas (2007) found that household income is more important for individual happiness than personal income in collectivist Mexico, indications are that the opposite may be the case in more individualistic societies. Ahuvia (2002), for example, notes about the US that in two-income couples, individual income is more associated with happiness than joint income, even though joint income determines spending. The feeling of success, not the spending, is what counts. Pahl (2005) reports changing patterns of money management in the UK and elsewhere, and argues that couples are becoming more individualised in their finances, especially when the partners’ incomes are broadly equivalent. The same may also hold for Norway, which is considered highly individualistic (Veenhoven 1999) and ranks as one of the world’s highest on gender equality measures (e.g., women’s average monthly pay was 84.5 of men’s in 2004). Additionally, social benefits in Norway are linked mainly to the individual and not to the family, so that married women have rights independently of their husbands.

  2. In the 2002 Living Conditions Survey, among persons aged 40–79 who are living with a partner, personal and household income are correlated .91 for men and .47 for women (similarly .96 and .62 for property assets and .94 and .31 for debt). As indicated, the partner’s financial resources may be the best indicator of financial circumstances for a sizeable portion of women. This finding relates to their greater chance of working part-time or being out of work (due to pregnancy, etc.).

  3. Official statistics on real estate (one component of property assets) are in the form of the taxable value of this property. The taxation value of homes and other real property is much lower than their real market price, typically about 20% of the market value (Statistics Norway 2005). The modal response in Norwegian social research has been to multiply property assets by 5 to gain an approximation of the real market value of such assets (Statistics Norway 2005). We adopted this approach. The taxation value of motor vehicles is typically close to the market value.

  4. Others have documented the covariates’ relationships to age, income, and financial satisfaction (Praag and Ferrer-i-Carbonell 2004; Seghieri et al. 2006; Vera-Toscano et al. 2006; Zimmermann 2006). These covariates have two purposes: First, as a means of exploring how the nonmonetary costs and resources affect financial satisfaction in midlife and old age, and, second, as potential mediators of the relationship between age and financial satisfaction.

  5. We tested the linearity of the relations between age and financial variables and age and financial satisfaction by adding squared terms of age (in addition to the linear effect) in linear regressions. We found that most correlations are indeed linear. The exceptions are the associations between age and income among men (the downward trend for income increases with higher age), age and property assets among men and women (inverse U-shaped curvilinear trends), and age and net worth among men and women (diminishing age effect, no significant increase beyond age 66 among women).

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Authors and Affiliations

  1. Norwegian Social Research (NOVA), Pb. 3223 Elisenberg, 0208, Oslo, Norway

    Thomas Hansen & Britt Slagsvold

  2. Department of Behavioral Sciences in Medicine, Medical Faculty, University of Oslo, P.O. Box 1111, Blindern, 0317, Oslo, Norway

    Torbjørn Moum

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  1. Thomas Hansen
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Correspondence to Thomas Hansen.

Appendix

Appendix

Table A Intercorrelations among all men and single women
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Fig. A
figure 3

Mean levels of financial satisfaction by income, assets, and debt groups (1–7), controlling for the other financial variables. Note: Groups 1–7 are categorized differently for income (using US$10,000 intervals, i.e., 20–30,000, 30–40,000, etc), property assets (US$50,000 intervals), financial assets (US$20,000 intervals), and debt (US$20,000 intervals). Note that category 7 is open-ended, i.e. it has a long right-tale (e.g., for income is includes incomes from US$80,000 and above). To estimate adjusted mean levels of financial satisfaction, we used analyses of covariance (procedure General Linear Model in SPSS)

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Hansen, T., Slagsvold, B. & Moum, T. Financial Satisfaction in Old Age: A Satisfaction Paradox or a Result of Accumulated Wealth?. Soc Indic Res 89, 323–347 (2008). https://doi.org/10.1007/s11205-007-9234-z

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