A blog to share my thoughts about trading, frugal living, money and the economy. Occasionally I might even throw in a few things about better living, technology, futurism, and science but these are always in some way related to finances or speculation.

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"I have become all things to all men so that by all possible means I might save some."

Thursday, September 21, 2006

The money-and-happiness correlation

The money-and-happiness correlation
Tuesday August 22, 6:00 am ET
Jay MacDonald

Wise men from Aristotle to The Beatles have observed that money can't buy happiness, but what inquiring minds really want to know is: Why not?
After all, we're constantly bombarded with evidence to the contrary, some of which must surely be true. The rich and famous seem to be fabulously happy as they scamper the globe in their private jets, acquiring real estate and adopting orphans, while we mere mortals simmer in rush-hour traffic just to keep food on the table.

Heck, money and happiness even seem to go together better than love and marriage, which, statistically at least, continues to have the same success rate as a coin toss.

But appearances can be deceiving.

According to a June 2006 study spearheaded by Princeton economist Alan Krueger and Nobel Prize-winning psychologist Daniel Kahneman, once you reach a certain income level, more money does not contribute significantly to well-being and may actually result in more stress and less bliss.

"The belief that high income is associated with good mood is widespread but mostly illusory," according to the study. "People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense and do not spend more time in particularly enjoyable activities."

The study found a weaker-than-expected correlation between income and moment-to-moment happiness in two surveys: a 2004 survey of 909 employed women in Texas and a 2005 survey of 810 women in Ohio. The researchers also looked at a Bureau of Labor Statistics survey on how folks at various points of the income spectrum spend their time. They discovered that women who make over $100,000 a year spend 19.6 percent of their time on passive leisure (i.e., fun), compared to women who make less than $20,000, who spend 33.5 percent of their time kicking back or socializing. The findings suggest a "focusing illusion" that leads people to work for more money even when happier pursuits would ultimately do them more good.

"Despite the weak relationship between income and global life satisfaction or experienced happiness, many people are highly motivated to increase their income," according to the study. "In some cases, this focusing illusion may lead to a misallocation of time, from accepting lengthy commutes (which are among the worst moments of the day) to sacrificing time spent socializing (which are among the best moments of the day)."

While we like to think we're just a lotto combination away from solving all of life's problems, experts agree that money itself has very little to do with living happily ever after.

The Jones factor
Remember the Joneses down the street? Daniel Gilbert says they actually might have more influence on your happiness than all the zeros in your savings account.

The Harvard psychology professor recently condensed 15 years of thinking about the elusive concept of happiness into his new book, "Stumbling on Happiness." He says that beyond a certain point, money has very little to do with happiness.

"The basic idea that 'If I could make more money I would be happier' is true if you're living in a cardboard box under a bridge; it's probably not true if you're making $190,000 a year," he says. "Money does make a difference when it moves you from abject poverty into the middle class, but it stops making a large difference at about that point. In terms of happiness, the difference between making $5,000 a year and $50,000 a year is dramatic, but the difference between making $100,000 and $100 million is negligible, almost nonexistent."

Nevertheless, an asset shortfall can dampen your bliss when it comes to keeping up with the Joneses.

"A lot of the happiness we get from money we don't get from money, per se -- we get it from our money divided by our neighbor's money. So much of our satisfaction with our income is relative, not absolute; it's not based on the number of dollars we make, it's the number of dollars we make relative to the number of dollars that other people around us are making. When people say, 'Gosh, if I could just earn a little more I'd be happier,' well, if you're the poorest guy in the neighborhood, that might be true, even if you're the poorest guy in Greenwich, Conn. But if you're the richest guy in the neighborhood, even if you're the richest guy in the Bronx, it probably isn't true."

Gilbert says one way to free ourselves from the "money-go-round" is to recognize when enough is enough.

"People would be wise to earn money up to the point of inflection, to the point where more money isn't going to make much of a difference," he says. "One of the things that people have to think about when they talk about money and happiness is where they are in their reference group. If you're in the middle or high end of your reference group, more money isn't going to make it better. If you're in the low end, it actually might make a difference."

Paul Taylor says Americans have always stalked life's pleasures, so studying the causes seems prudent.

"The pursuit of happiness has had a particular resonance in our own national history; it's embedded right there in our founding document. But it has a pride of place in the whole of human history; human beings want to be happy. So understanding what the track record has been and what elements contribute to that pursuit is important," he says.

As executive vice president of the Washington, D.C.-based Pew Research Center, Taylor headed up a February 2006 survey -- "a snapshot," he calls it -- of how that pursuit is going early into the new millennium.

February 2006 survey -- a snapshot

Among its findings:

Republicans are happier than Democrats.

Married people are happier than unmarried.

Churchgoers are happier than nonchurchgoers.

Sunbelt residents are happier than those living elsewhere.

Contrary to expectations, however:

Retirees are no happier than workers.

Pet owners are no happier than those without pets.

Where income is concerned, the Pew survey found that happiness does indeed increase with income; those who said they were "very happy" increased consistently with income, from 24 percent in the under-$30,000 income category to 49 percent in the $100,000-plus category.

But Taylor is quick to point out that there's a chicken-and-egg element to these findings that might lead to misinterpretation: "Perhaps money leads to happiness. Perhaps happiness leads to money. Or perhaps both are influenced by some other, more powerful factor."

Whatever the case, Taylor says the findings indicate that while money might not make you happy, not having money certainly contributes to unhappiness.

"The linear relationship that 'the more income you have, the happier you are' has been around a long time, despite the persistence of the old adage, 'Money doesn't buy you happiness.' Well, the one may not buy the other, but they do seem to hang out together in ways that suggest there is a relationship between the two," he says.

The Pew researchers intentionally left it to the 3,014 respondents to define what happiness means for them.

"That's going to mean different things to different people, but if you take a big enough sample, you'll at least get some broad gauge of people's self-assessment," he says.

The happiness paradox
Bruce Weinstein, "The Ethics Guy" and author of "Life Principles: Feeling Good by Doing Good," says those who confuse the accumulation of quantifiable things like money, power or fame with happiness are doomed to miss the love train.

"Aristotle says that happiness is the only thing that is coveted for its own sake rather than for the sake of something else. It's the ultimate end, the ultimate good. Money is only of instrumental value, only good for what it gets us. So what we find is that people who value money never have enough. If you ask anyone whose primary purpose in life is to acquire wealth if they have enough now, they will say no, I don't. The same with power or fame -- it's never enough.

"Beyond a certain point, more money does not equate with more happiness. If it did, you would expect to find the wealthiest or most famous people to be the happiest, and that simply is not the case. Once our basic needs are met, it turns out that it's friendship and being loved and having someone to love that makes life worth living," he says.

Want to find true happiness? Weinstein has a suggestion:

"I think the solution to happiness lies in the little things. When you're on the bus, instead of whipping out the BlackBerry, maybe actually strike up a conversation with the stranger next to you. Or do nothing; stare out the window or be quiet. I suspect that either or both of those things, practiced regularly, would bring a bigger sense of well-being."

Gilbert maintains that the whole concept of somehow accumulating happiness is both foolhardy and even a little scary.

"It's important to recognize that you're not meant to be happy all the time," he says. "That's not what your brain is generating emotions for. Emotions are a very primitive guidance system. It's your brain's way of telling you when you're doing the right thing or the wrong thing. That's why you get a positive emotional reaction when you approach a naked woman but not a bear. Imagine that you somehow found a medication or a surgery or a deodorant or whatever that made you permanently happy all the time. Well, now you're smiling when you approach the bear, and that's a problem.

"At least, luckily, we could say you won't have children to pass this problem along to.

"Your emotional system is guiding you through life, so it has to respond positively and negatively. A compass that's stuck on north all the time is useless, and that's what a person who is stuck on happy would be."


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