Does Money Affect Happiness and Self-Esteem? The Poor Borrowers' Perspective in a Quasi-Natural Experiment
This paper investigates the impact of money on psychological variables by looking at the effects of tsunami on life satisfaction and self-esteem of a sample of 305 microfinance borrowers in Sri Lanka.
Research on the nexus between life satisfaction and income has looked at lottery winners to document that exogenous changes in income generate effects of the same type on happiness. This paper considers the tsunami event as a “negative lottery” and examines its effects on income losses, life satisfaction and self-esteem. The paper defines a treatment (tsunami-damaged group) and a control sample (non-damaged group) of borrowers of the same MFI, living in the same area. Study results demonstrate that:
- Shock effects are very serious since they generate concurring losses in income and a drop in life satisfaction and self-esteem of damaged borrowers;
- Nothing similar happens for the control group, demonstrating that the shock can be attributed to the selection for the “negative lottery.”
Finally, the paper shows that changes in income and the material damages from the tsunami significantly affect change in life satisfaction and self-esteem, even though they cannot explain all variations of the two variables.
