Money & Happiness: It’s Complicated

Does more wealth lead to more happiness? Researchers have tackled this question for decades, and although the results have differed, one fact is certain: the relationship between money and happiness can be very complicated.

Think before you spend

In their book, Happy Money: The Science of Smarter Spending, professors Elizabeth Dunn and Michael Norton summarize their own and others’ research. They discovered it’s not necessarily how much you make that matters to overall happiness (although it certainly contributes), but what you do with your money. They boiled down the findings to five “key principles of happy money.”

  1. Buy experiences. Investing in memories can result in a more sustained level of happiness than buying a bigger house, a more luxurious car, or other material goods. Buying the latest technological gadget might elicit the kind of joy a child experiences opening a new toy, but the gadget loses its novelty with time. On the other hand, experiences create memories that help foster prolonged contentment.
  2. Make it a treat. While you’re investing in those experiences, be sure to spread them out so they don’t become expectations or habits. In this way, the novelty of each new experience will be fully realized. As the book says, “Abundance is the enemy of appreciation.”
  3. Buy time. Investing in products or services that allow you to spend more time on the things, and with the people you love, will lead to greater overall wellbeing. Avoid putting a dollar value on your time, as this can increase stress. “Simply feeling like your time is valuable can make it seem scarce,” say Dunn and Norton.
  4. Pay now, consume later. Paying for a treat or experience up front, like event tickets you buy months ahead, allows you to benefit from the extended pleasure of eager anticipation. Conversely, credit cards can be a dangerous habit, giving a “consume now, pay later” attitude. A study cited in Happy Money found 100% surveyed underestimated their monthly credit card bills by nearly 30%.
  5. Invest in others. Regardless of circumstances—research finds spending money on others leads to greater happiness than spending on oneself.

The danger zones

While some experts differ on whether higher incomes result in greater levels of happiness, they do agree on the following: increasing debt levels is detrimental to happiness, and keeping up with the Joneses can lead to a sense of dissatisfaction. Actively managing debt while finding ways to appreciate what you already have, may help you make well-thought-out saving and spending choices that support your overall level of wellbeing.

Frank Mokosak is a Certified Financial Planner practitioner and Chartered Adviser in Philanthropy® with Mokosak Advisory Group, LLC, of Urbandale. Contact Frank at (515) 223-5404 or Registered Representative, Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Mokosak Advisory Group are not affiliated.