Money can’t buy happiness ... or can it? - Episode 69
Episode 69 – Money can’t buy happiness ... or can it? In his thought provoking book The Geometry of Wealth, author Brian Portnoy observes “Does money buy happiness? The answer to that question can be summarised as Yes, Not really, It depends”. Intuitively none of us like ambiguous answers like this, but here, it successfully illustrates the complexity inherent in the question. After all, what is happiness? There are plenty of sayings we get brain-washed with, that actually don’t stand up to scrutiny. “What doesn’t kill you makes you stronger”. Really? If I lose a limb or suffer a stroke, I doubt I’m stronger. Or how about “slow and steady wins the race”. Doesn’t sound like a recipe for success that Usain Bolt applied. Likewise, we all know the saying money can’t buy happiness. But I’m quite sure that if you’re on the pittance known as Newstart, some extra money would almost certainly add some happiness to your life. If we really believe money can’t buy happiness, why do so many people buy lottery tickets? Indeed recently I observed a queue to buy a ticket in a lottery that had jackpotted to $100million. That lottery regularly has prizes of $20million. Your chances of picking the correct numbers are exactly the same, yet somehow, people who weren’t sufficiently motivated to buy a ticket for a potential $20million, were stampeding the counter for an extra $80million. Money can definitely alleviate poverty. It can put a roof over your head, food on the table, warmth, clothing, and medical support. Once our basic needs are meet, money’s impact on our happiness is progressively less impactful. If you’re a CEO on $1million, a 5% pay rise isn’t going to move the happiness dial for you enormously. Yet for someone on $45,000, to get that same additional $50,000 per year would almost certainly have a big impact. Their housing options would change, their ability to support children would be enhanced, they could afford better medical care, etc. We find happiness in many things. Connection with our community, making progress towards and achieving goals, learning new things, enjoying exhilarating experiences, and watching others grow. So how can we use money to help achieve these outcomes? I believe the power of money as it pertains to achieving happiness is in gaining choice. By paying off your mortgage, you gain the choice of working part time, or having a longer holiday. By putting money aside for your children’s future, you gain the choice of where they might go to school, or which extra circular activities they might undertake. By having savings rather than debt you reduce stress in relationships, often an enormous contributor to unhappiness. Money won’t make you happy in isolation. As an illustration, we often see successful artists who earn huge amounts of money succumb to drug addiction. Money in this case is perhaps the enabler of self destructive behaviour. Which is why a focus on using money to gain choice is where I believe the potential exists for happiness to flourish. What else do we know about using money to give us happiness? A paper from US academics titled “If money doesn’t make you happy then you probably aren’t spending it right1” offers some useful tips. They observed “money is an opportunity for happiness, but it is an opportunity that people routinely squander because the things they think will make them happy often don’t”. They found we tended to be pretty bad at predicting how happy a certain action or thing will make us. We consistently mis-predict what will make us happy, how happy we will be, and how long the feeling of happiness will last. The authors identified 8 principles that could help us all make money decisions with a better chance of producing happiness. Principle 1 – Buy experiences instead of things. Two reasons were found to explain why experiences tend to produce greater happiness than things – the first is that we adapt to things quickly. We buy a new lounge suite and initially it makes us happy as we walk into the room and admire it, but pretty quickly it’s just somewhere to sit while we watch Netflix. This is known as adaption. The second reason why experiences win is that often experiences are shared with other people, and other people are a key element of happiness. Principle 2 – Help others instead of yourself We humans are the most social creatures on our planet. Numerous studies have shown that improving our connection with others improves our happiness. In a money context this might mean supporting a charity or community group. Principle 3 – Buy many small pleasures instead of few big ones In principle 1, we observed the problem of adaptation. One way to counter this problem is to spend your money on frequent small pleasures, which are different every time. This constant change can produce sustained delight, producing more happiness than one big purchase, followed by nothing. Principle 4 – Buy less insurance The authors here specifically referred to extended warranties and generous return policies. They found that humans have a robust psychological immune system. When you buy the new 100 inch TV, it’s tempting to think an extended warranty makes sense because the happiness you are feeling at the time of purchase will be maintained for years to come. But the reality is that if that TV dies in 3 years’ time, you’ll only be modestly upset, and will pretty quickly move on to the potential happiness of upgrading to whatever the latest innovation is. Principle 5 – Pay now and consume later From instantly downloading music, to same day delivery from Amazon, and slapping down the credit card for a new pair of jeans, the modern world is constantly pushing us towards consuming now and paying later. But this is not the path to happiness. Rather, we get the short term adrenalin shot of happiness, followed by months or perhaps years of paying off a debt and/or not building any savings to provide future choices in life. The other downfall of the consume now, pay later approach, is it removes the happiness element of anticipation. Think back to when you were a kid and you wrote your Christmas list to Santa. For weeks you’d lie in bed dreaming about that toy you just hoped Santa’s elves could come up with. The happiness delivered through that anticipation is worth at least as much, and quite possibly more, than the happiness derived when we ripped open the paper on Christmas day. Delayed gratification is a thing. Principle 6 – Think about what you’re not thinking about Happiness is often in the details. Buying a holiday house by the beach may well make you happy, but’s it’s easy to disregard the hassles of maintenance, damage and complaints from the neighbours due to AirBNB guests, and the long drive to and from. If you think through these issues, your choice of holiday house might be a lower cost option that leaves you with money to pay someone to maintain the garden, is closer to home, or doesn’t need to be rented out to make it financially viable. Alternatively, a pool in the back yard could be a better bet. Principle 7 – Beware of Comparison Shopping The internet makes research and comparison so easy. But does it lead us to spend our money in ways that makes us happier? The authors concluded that the answer was often no. They found that was because we tended to focus on the differences between one product and the next, which were actually fairly insignificant to the consumption experience. So we spend an extra $1,000 on car A rather than car B because car A has a sun roof, but actually we very rarely open the sun roof, and when we do we find the noise irritating. Principle 8 – Follow the heard instead of your head Several studies were pointed to which suggested that “the best way to predict how much we will enjoy an experience is to see how much someone else enjoyed it”. I find this really counter intuitive, because in an investment context, the opposite is true. But when considering the spending of money to produce happiness, the researchers found that when for instance choosing which movie to see, greater happiness was derived by selecting the film rated highly by others of a similar age and gender, than by researching the plot, actors, directors, etc. Happiness is about far more than money. But money, used well, can definitely contribute to your happiness. I hope this post helps you in pulling to two together.
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