2.2 Why the correlation between income and material well-being is so low
The original researchers reported that the correlation between an older person’s current income and their material well-being score,[9] while clearly statistically significant, was not particularly strong. For example, among single people, the simple correlation was 0.24, while in a more complete regression model, variation in their income explained only 6% of the variation in their material well-being scores. This modest association may not be particularly surprising for this population when one considers that there are many factors in addition to income, such as financial assets, housing tenure or health status, which can influence people’s ability to experience a comfortable lifestyle in retirement.
Another reason for the apparently low correlation between income and material well-being may be that the almost universal[10], guaranteed income at standard rates provided by New Zealand Superannuation (NZS) has resulted in a much more concentrated distribution of total retirement incomes than one observes in other countries. For example, almost all survey respondents report receiving NZS, and this source accounts for three-quarters of total income on average (see Table 1).
Figure 1 contrasts the distribution of material well-being scores with the distribution of current incomes. As noted above, well-being scores show a long tail to the left and have an upper bound. Incomes, by contrast are substantially bounded from below, but have a tail that extends to the right.
It is not surprising, therefore that two such differently shaped distributions should show a low degree of positive correlation. It is inevitable that many superannuitants on the modal income will show up spread across a considerable range of well-being scores. Similarly, those who are bunched near the top of the well-being scale will report a range of different incomes.
This point is illustrated in Figure 2, which shows scatterplots of current income against well-being score for single and couple core economic units.
