Happiness, Economic Shocks, and Household Savings: A Multi-country Mixed-effects Analysis

Abstract

The literature on household saving traditionally emphasizes rational intertemporal choice, yet emerging research indicates that psychological well-being and sudden economic disruptions also critically influence saving decisions. Using cross-sectional data (N ≈ 97,220) from Wave 7 of the World Values Survey spanning 66 countries, this study explores how subjective well-being (happiness) interacts with exposure to economic shocks in shaping households’ saving propensities. A mixed-effects ordered logit model is employed to accommodate both the ordinal nature of the dependent variable and country-level heterogeneity through random intercepts and a random slope for income supported by a likelihood-ratio test. The findings suggest that higher subjective well-being consistently is associated with stronger saving tendencies, while recent shocks exert a robustly negative effect with a clear severity gradient. Importantly, the happiness–saving association becomes less positive under moderate and severe shocks (with little change under mild shocks), indicating that psychological resources help in calm conditions but are strained as constraints intensify. Subgroup analyses show a stronger happiness–saving link for women and the unemployed in calm conditions, with larger level reductions from shocks among men and singles; post-COVID estimates shift from average level differences to differences in the slope by happiness, and development splits indicate that in non-LMIC contexts severe shocks need not weaken the happiness association, whereas in LMICs severe constraints do. Taken together, these findings suggest that while subjective well-being is a key driver of prudent financial planning, its protective role weakens under disruption. Policy that safeguards saving must therefore pair psychological supports with structural measures such as cash-flow protection, simple commitment tools, and trust-enhancing financial infrastructure. The study advances behavioral finance models by linking planning motives to feasible choice sets and guiding policymaking toward a holistic approach that addresses both psychological and structural dimensions of saving behavior.