Income or Consumption: Which Better Predicts Subjective Well-Being?

The positive relationship between income and subjective well-being has been well documented. However, work assessing the relationship of alternative material well-being metrics to subjective well-being (SWB) is limited. Consistent with the permanent income hypothesis, we find that a consumption-based measure out-performs (surveyed) income in predicting subjective well-being. When objective measures of consumption are combined with self-assessments of a household's standard of living, income becomes insignificant altogether. We obtain our result utilizing household-level data from Statistics New Zealand's New Zealand General Social Survey which contains measures of income, SWB and a measure of material well-being called the Economic Living Standard Index that combines measures of consumption flows and self-assessments of material well-being.