Is the Subjective Financial Well-being of Polish Households Changing with Time? An Empirical Study Based on Constrained Latent Markov Models
DOI:
https://doi.org/10.15678/krem.18792Keywords:
constrained latent Markov model, financial well-being, homogeneity, transition matrixAbstract
Objective: According to the most recent available Eurostat data from 2018, Poles’ satisfaction with their financial situation stood at 6.3 points, which was below the EU average. We focus on how households’ behaviours have evolved over the past 15 years and their impact on perceived financial well-being.
Research Design & Methods: To comprehensively assess the financial situation of Polish households, this study leverages the Social Diagnosis panel research, a longitudinal dataset spanning eight waves from 2000 to 2015. We employ latent Markov models with varying numbers of latent structures, incorporating survey weights and different sets of transition matrix constraints to analyse the dynamics of financial behaviours and identify potential shifts over time. We consider a heterogeneous transition matrix (not constrained) where the transitions are allowed to vary freely across time points, and partial-homogeneity, allowing some transition probabilities to vary while others remain stable across time.
Findings: Through these models, we find three latent states of Poles with similar level of income perception and describe the process of changing opinion in the analysed period of time. We demonstrate the self-reported financial satisfaction in each round of the national longitudinal Polish survey with a particular interest in financial behaviours before and after the financial crisis. Our analysis reveals a distinct pattern following the peak of the financial crisis: Individuals exhibited a higher probability of remaining in the unsatisfied group, a lower probability of maintaining full satisfaction, and reduced likelihood of transitioning from dissatisfaction to general satisfaction, particularly during the two waves immediately following the crisis.
Implications / Recommendations: Our findings underscore the critical role of financial well-being in shaping individual behaviour and societal outcomes. These insights can inform policymakers as they allocate public funds, emphasising the need to prioritise policies that support financial stability and resilience. Moreover, the proposed approach could be extended to examine respondent behaviour before and after other significant global events, such as the EU accession (2004), the COVID-19 pandemic, or the Russia-Ukraine war.
Contribution: A key contribution of this approach is our conceptualisation of self-reported income satisfaction as a latent, discrete variable, which we analyse using a particular latent variable modelling techniques. This research addresses a critical gap in understanding the evolving dynamics of households’ behaviour and the impact of economic downturns on financial perceptions in developing countries like Poland. Moreover, compared to the most recent studies on financial well-being that also cover other national surveys, we demonstrate changes in attitudes across society by analysing all waves of the national longitudinal survey, accounting for the heterogeneous structure of the data and incorporating survey weights.
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