In Down Times, Faith Impacts Spending and Happiness

During economic hard times — your wages get cut or you lose your job — can your faith pull you through?

Assistant Professor Erzo Luttmer, in a research paper released in the fall, found that it can, both in terms of your spending and your happiness.

“Traditionally, if something bad happens to your income, unemployment insurance, if you have it, picks up the tab and you can keep your consumption relatively steady,” he says. “What we wanted to know was, does religion provide people with some kind of buffer against shocks, especially income shocks?”

Using two national surveys, including the National Survey of Families and Households, he and his co-authors found that religion does play a positive “insurance” role. Overall, spending is less affected by income shocks in religious households (measured by making a contribution to a religious organization) — about 30 percent less than spending in non-religious households.

But, surprisingly, when broken down by race, they found that there are differences. Religiously active whites, for example, experience less spending disruption than their non-religious counterparts, but neither group is any happier, at least statistically speaking. For blacks, religious participation only slightly affects spending during economic hard times, but it does keep their happiness level very high.

“The findings fit well with what we’ve read in the sociology literature on how white and black churches work,” Luttmer says. “Typically, for African Americans, church is the community, with longer services and teachings on how to deal with setbacks in life.”

These churches may also provide other assistance such as meals or babysitting — contributions that may not directly impact spending and are not measured by the Consumer Expenditure Survey, the other data source the researchers used.

“In white churches, people may be made to feel guilty for getting assistance and aid tends to be more in cash or loans,” he says, which has a direct, measurable impact that can keep spending steady, but has less of an effect on happiness.

Luttmer says he wanted to do this research not only because he was interested in seeing what kind of benefit religious activity brings to people, but also to see what drives the demand for government-provided assistance, such as unemployment insurance. What they found is that insurance provided by religious organizations can help explain why there is less demand for government assistance in more religious areas and by more religious individuals.

“Social insurance is less valuable for those who are already partly insured through their religious organization,” they write, “implying that the optimal level of social insurance is inversely related to the religious participation of the population.”

“We see this as well when we compare Europe and the United States,” Luttmer says. “Europe is more secular and we see a higher demand for government-provided insurance. The United States is more religious and there’s less of a demand.”

To read the full report, download working paper RWP05-04 on the faculty research working paper Web site at www.ksg.harvard.edu/research/working_papers