Could Liquid Wealth, or “cash on hand”—the balance of one’s checking and savings accounts—be a better predictor of life satisfaction than income? In a field study using 585 U.K. bank customers, Ruberton, Gladstone, and Lyubomirsky analyzed the relationship between their bank accounts and life satisfaction. Individuals with higher liquid wealth were found to have more positive perceptions of their financial well-being, which, in turn, predicted higher life satisfaction, suggesting that liquid wealth is indirectly associated with life satisfaction. This effect persisted after accounting for multiple controls, including investments, total spending, and indebtedness and demographics.

The paper noted that: “Our results suggest that having a buffer of money available in checking and savings accounts confers a sense of financial security, which in turn is associated with greater life satisfaction. The strength of this association was comparable to the effect of investments—which may themselves be liquid assets (e.g., money market accounts)—and slightly greater than the effect of debt status. By contrast, higher income and spending—the amounts going into or out of a person’s bank account—were not associated with increased financial well-being after liquid wealth was included in the model. This finding suggests that people with low liquid account balances may feel more economically distressed—and thus less satisfied with their lives—than their peers with higher balances, even if their incomes and spending, considered separately from their account balances, would predict high financial security.”

In summary, the researchers find that liquid wealth has a stronger relationship to happiness than those of income, spending, investments, or indebtedness. In other words, the study found that having cash on hand was positively associated with life satisfaction and well-being, regardless of how much the individual has in income or investments.

The post How Your Bank Balance Buys Happiness: The Importance of “Cash on Hand” to Life Satisfaction appeared on Personal Finance News.