Month: May 2021

Happiness and Money

Bill Clinton’s 1992 campaign mantra proclaimed:  “It’s the economy, stupid.”  Granted he was trying to win the presidency, but if his statement was true, then the current strong economy and stock market should make us all happy.  Right?  After all, the economy and current euphoric stock market bodes well for retirement accounts, educational funding opportunities, bucket list items, and the chance for once-in-a-lifetime dreams to come true.  And yet, it is often said that money can’t buy happiness.  The U.S. has gotten a lot richer but it hasn’t necessarily gotten happier by many measures.

Obviously, the relationship between happiness and money is not simple and there are many dimensions.

Money and happiness were linked in Franklin Roosevelt’s campaign theme song “Happy Days are Here Again.”  In the 60s the Beatles sang “Can’t Buy me Love.”  Pharrell Williams sang Happy in 2014 and TikTok now offers Be Happy by Dixie D’amelio.  Whatever the age, happiness is big and so is money.

Happiness and money (or the lack of money) are often interrelated and entangled

Money is easy to measure, but happiness from money is much harder to value.  You can easily look at your online brokerage statement and see everything from a high-level summary to great detail.  Depending on markets, this review elicits either a happy or an unhappy gut reaction.  (When markets are down sharply, people often don’t even want to look at the statements.)  Although Fidelity, Schwab and other investment websites provide great “money” detail, don’t expect an online tab or section anytime soon that calculates you your happiness value.  Without a doubt, happiness from money is far more complicated and nuanced.

Happiness can be defined as an emotional state that includes gladness, pleasure, felicity, a feeling of good fortune and possessing what you desire.  It tends to be externally triggered based on other people, things, thoughts and perceptions, and it is often transitory.  Happiness is sometimes described as joy, but joy can be differentiated from happiness based on a deeper sense of grace, gratitude, hope and contentment with who you are.  Psychologists often attach a sense of emotional and physical wellbeing to the definition of happiness.

However you define it, Amazon offers plenty of plenty of books on money and happiness.

We value and strive for more of both happiness and money

America’s founders enshrined the concept of happiness in the Declaration of Independence:  “We hold these truths to be self-evident that all men are created equal  … with certain unalienable rights, that among these are life, liberty and the pursuit of happiness.  Earlier drafts included the right to own property, but property was ultimately dropped because it was seen as redundant to liberty and the pursuit of happiness.

A current indication of the popularity of happiness is a Yale class called the Science of Well-Being. This class, the most popular course in Yale’s 320-year history, is taught by Laurie Santos, a psychology professor whose lectures attract nearly a quarter of the Yale student body.  If you are interested see Yale Happiness Class

Positive Psychology is another happiness development.  Positive psychology is the scientific study of what goes right in life.  Psychology historically held a clinical focus on human problems and how to remedy them.  It looked at weaknesses and shortcomings, including depression, despair and disorder.  Positive psychology was popularized by psychology professor Martin Seligman, a leading happiness researcher.  Positive psychology examines how individuals can create full and healthy lives.  It doesn’t deny the valleys, and it recognizes that life entails more than avoiding or undoing problems, but it recognizes positive life events as a significant part of the human condition.   A positive psychology perspective is helpful when thinking of happiness and money.

Market traders and investment pundits on the Bloomberg Market and the CNBC cable channels give real-time examples of happiness/unhappiness and money.  Frantic and panicked are words that describe the tone on big down days.  Raw base instincts are laid bare.  Big smiles, complacency, hubris and overconfidence are on display on big up moves.  (Oftentimes you can have the audio turned off and you can tell big market moves from facial expressions.)  You may wonder where are the grown-ups.  The reality is that money and happiness are amped up to the max in these circumstances.  For individuals, money (as expressed through the markets) also generates both happiness and unhappiness.  Down markets contribute to insecurity or a fear of an inadequate retirement or shortfalls related to other investment goals.  Although down markets elicit concern, up markets don’t cause individuals to say their investments are too high or too much.  It is clear that too little money causes unhappiness, but it is less clear that more money causes more happiness.

A widely cited 2010 study found that the relationship between happiness and income plateaus once you earn $75,000  (Nearly $90,000 in 2021 dollars)

This study, by Nobel Prize winners Daniel Kahneman and Angus Deaton, showed that poverty, (including insufficient education and inadequate healthcare,) causes distress and unhappiness.  That is no surprise.  When these basic needs are met, however, the benefits of additional income rapidly diminish.  A common explanation for why money doesn’t buy happiness can be described by the term psychological homeostasis.  Psychological homeostasis, among other things, describes the human tendency to get used to circumstances quickly, both positive and negative.

Another study conducted by psychologists Sonja Lyubomirsky, David Lykken and Auke Tellegen found that the way our brains internally process our circumstances is more significant than external factors.  Their research found that external factors like income and investment levels account for about 10% of long-term happiness.

Subsequent research has further refined the association between money and happiness.  Research completed in 2020 by Jean Twenge, a psychology professor at San Diego State University and Matthew A. Killingsworth, a happiness researcher and senior fellow at the University of Pennsylvania’s Wharton School of Business, shows that happiness continues to increase for high-income earners.  Their 2020 study says that the earlier “$75,000 happiness plateau” thesis was misunderstood.  Killingsworth said the original study was for a specific kind of happiness:  emotional well-being that encompasses day-to-day experiences and feelings.  When looking more broadly, however, they found longer-term life evaluation continues to be positively impacted by money.

Economic analysis of lower income families shows a clear relationship between happiness (and unhappiness) and sufficient (insufficient) money for necessities.  Adequate income allows getting enough to eat, a roof over your head and the wherewithal to take your kid to the doctor.   Within that context, relieving poverty is a major driver of increased happiness.

These studies and research have some latitude for a range of interpretations, but they do point to a relationship between money and a longer-term sense of life satisfaction, contentment and well-being.

Money allows for enriched experiences

Although money can’t generally buy sustained happiness, it can offer big benefits if used as a tool to enrichen lives.

It provides for educational opportunities, and education strongly correlates with future happiness.  With more education, people are more likely to be able to do the things that give their life purpose.  For example, it allows travel to experience different cultures.

It provides improved healthcare, which allows longer productive lives while reducing pain and suffering.

It allows charitable gifts to lift up worthy causes.  There is a high correlation between charitable giving and happiness.  Giving allows the potential for great transformation, and this can provide immense joy.  By contrast, psychologists report that self-centeredness and self-absorption tend to lead to stress behaviors, isolation and unhappiness.

It provides the potential better use of our time, according to researchers at Harvard Business School.  While increasing wealth can produce an unintended consequence of a rising sense of time scarcity, money spent to purchase time-saving services can enhance happiness and life satisfaction.  By eliminating tedious, humdrum activities, people are free to pursue their passions.

In short, greater financial resources allows people the freedom to flourish.  Meanwhile, a lack of money precludes these benefits.

The Downside

While money can be a beneficial tool, it should not be an end to itself.  There is a danger that our personal identity can be wrapped up by the amount of money we make and how much we possess.  It becomes a shallow point of pride.  If we are driven to simply accumulate it, we can lose sight of the purpose of money.  It has been described as collecting hammers instead of building a house.  We can also succumb to messages and images that entice us to pursue something more or better.  Our culture induces dissatisfaction with who we are and what we have as it drives desires for a new car, a bigger house or a work promotion.  These messages make it difficult to be content with yourself, your family, your work and with your possessions.

There can also be an unhealthy personal association or attachment related to money.  Examples include an excessive need for safety, secrecy, control, pride, power, weakness, virtue, vice, envy, regret, etc.  Moreover, shame can result from feelings of how much or little you have, and how well or poorly you spend it and even your perception of self-worth.  These dysfunctional attachments and associations typically go back to our upbringing and our culture, and they are hard to overcome.  Finally, money and spending priorities are known stressors in marital and other relationships.

Winning the Lottery Is No Curse

Lotteries provide an interesting case where a winner is instantaneously morphed from low/middle income in a “life-changing” transformation to great wealth.  This phenomenon is much different than wealth derived by an entrepreneur founding a successful company or the receipt of a large inheritance.  Media portrayals of lottery winners show ecstatic people basking in their sudden, newfound wealth.  Lottery winners are quite newsworthy and considered “good tv”, and there is a common narrative that winners will blow it and declare bankruptcy.  Popular accounts and anecdotes abound that say that winning the lottery brings bad luck and that all that money makes people miserable later in life.

Contrary to common stereotypes, academic studies find far different outcomes.  A study, published by the National Bureau of Economic Research, by New York University economics professor Daniel Cesarini and his fellow researchers found that lottery winners retained their wealth well over a decade after their big win.  They found that winners that quickly squander their wealth are rare.  In most cases, they saw that people worked a little less, and that they spent their money prudently.  They also found that people who win large sums of money do cut down on work but it’s quite rare for them to quit altogether. They cut back mostly in the form of taking longer vacations.  The study found “Large-prize winners experience sustained increases in overall life satisfaction that persist for over a decade and show no evidence of dissipating with time.”  In other research, University of Michigan economic professors Justin Wolfers and Betsey Stevenson documented that lottery winners have higher life satisfaction.  The relationship between income and satisfaction is remarkably similar across dozens of countries.

It needs to be acknowledged that research on lottery winners is difficult and complicated.  Results are often found by surveying winners, and self-reported data suffers from low quality.  In addition, lottery winners are under no compulsion to report their income and tax records to researchers.  Finally, research is biased by the fact that cases of financial ruin are more frequently publicized than cases of stability.  Another complicating factor is the reality that many lottery winners choose to remain anonymous.

Although rags-to-riches stories are popular fare and make interesting reading, it should be noted that low-income groups have higher participation rates, and many social policy advocates view lotteries as a regressive tax.  Lotteries have been disparagingly referred to as a stupidity tax.

Religious Faith & Biblical Perspective.

The Bible dedicates numerous passages of scripture to money and the use of money.  In general, the Bible doesn’t necessarily condemn wealth but it does stress the obligation to be generous and it highlights the risk of loving money.  Wealthy Biblical individuals include Abraham, Solomon and Job.  Examples of generosity include Joseph, called Barnabas, Cornelius and Philemon.  Some scriptural passages include:

Warning against the love of money.  Hebrews 13:5 says to Keep your lives free from the love of money and be content with what you have.  Matthew 6:24 says No one can serve two masters, for either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve God and money.  1 Timothy 6:6-12 says But godliness with contentment is great gain, for we brought nothing into the world, and we cannot take anything out of the world. But if we have food and clothing, with these we will be content. But those who desire to be rich fall into temptation, into a snare, into many senseless and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evil.

Charitable Giving/Stewardship. Charitable giving is a recurring theme throughout the Bible.

Acts 20:35 says In all things I have shown you that by working hard in this way we must help the weak and remember the words of the Lord Jesus, how he himself said, ‘It is more blessed to give than to receive.’  2 Corinthians 9:7 says Each of you should give what you have decided in your heart to give, not reluctantly or under compulsion, for God loves a cheerful giver.

A profoundly spiritual paradox is that giving is the ultimate source of great wealth and happiness.

Blessings & Rewards:  The Bible is sometimes maligned by a narrative of vengeance and punishment, but there are many passages related to blessings and rewards.  Proverbs 3:9-10 says Honor the Lord with your wealth and with the first-fruits of all your produce; then your barns will be filled with plenty, and your vats will be bursting with wine.  Matthew 5:21 says His master replied, ‘Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master’s happiness!’

These passages don’t endorse the prosperity gospel, but they do provide a broader perspective than is commonly portrayed.

Work and Money and Happiness.

The value of work is a robust finding in happiness research.  Quite simply, a job gives a feeling of earned success and it lifts up our pride and self-worth.  Despite long commutes, the drudgery of routine tasks, all-too-frequent Zoom sessions and bad managers, work provides a sense of achievement, creative effort, and self-reliance.  In contrast, unemployment and underemployment bring misery and despair.  There is a danger in over-romanticizing work, and there are clear cases of a bad fit.  In these circumstances there is a need for job skills and training for the marginalized.

Whether running a hedge fund or trimming a hedge, work creates a sense of purpose that transcends the paycheck.

Some things money just can’t buy

“Tell me that you want the kind of things that money just can’t buy” according to the Beatles song ‘Money Can’t Buy Me Love.’  The focus of this blog post has been on the relationship between happiness and money (and the lack of money).  As mentioned previously, happiness and money are interrelated, but there are some fundamental factors that are in many ways independent of money.  After all, there is a difference between being rich and wealthy.

Listed below are some additional key happiness factors:

Relationships.  You can’t buy friends and family.  They are there, and are important whether you live in poverty or have a fortune big enough to buy Texas.  A close bond with people we trust and confide in is essential to our happiness and overall well-being.  Relationships keep us grounded, they sustain us through good times and bad and they give us a sense of community.  People with strong ties to friends and family have the highest levels of happiness and wellbeing and friends and family relieve feelings of depression and negative thinking.  They lift us up and help us see something bigger than ourselves.

Faith and Spirituality.  Research has shown over and over that people with faith and who follow a spiritual practice tend to be happier and more able to handle life’s vagaries than nonbelievers.  Faith helps take the focus away from narrow self-interests to ponder the deeper meaning and purpose of life.  Faith is transcendent, it is bigger than us, and it helps us grow.

Purpose and Agency.  Purpose is critically important in providing meaning in our lives.  The utilization of our talents, passions and aspirations helps us gain a sense of our unique calling, and that we are here for a reason.  Personal agency is the belief that you have the ability and capacity to influence or handle your thoughts and behavior related to circumstances and various life events.  It involves faith that you can deal with life’s tasks, challenges and opportunities rather than being powerless.  The combination of purpose and agency provides meaning and wellbeing and a sense of our personal destiny.

Giving and volunteering.  There is a high correlation between charitable giving and happiness.  Giving has the potential for great transformation that provides immense joy.  By contrast, psychologists report that self-centeredness and self-absorption tend to lead to stress behaviors, isolation and unhappiness.  Volunteering our time can even give us the feeling of having more time because we feel we can decide to give some of it away.  

See  Cornerstone Charitable 

Gratitude.  Gratitude involves thankfulness and appreciation of what is valuable and meaningful.  It has been shown to improve mental health, boost the immune system and contribute to an overall sense of well-being.  Gratitude includes kindness, which research links to physical and emotional benefits.  Fight-or-flight stress hormones are diminished as your brain releases oxytocin, a hormone that is correlated with trust, reduced fear and positive emotions.

Forgiveness.  Forgiveness is the conscious and deliberate act to release feelings of anger and negative emotion directed towards someone who has wronged you.  Forgiveness gives freedom from resentment, vengeance, hatred and other unhealthy emotions that are detrimental to happiness.  It doesn’t require reconciliation.  It allows us to extend grace and it liberates us from being captive to the offended one.  Forgiveness has been shown to reduce stress, anxiety and depression and to provide a more optimistic sense of well-being.

The attributes listed above greatly benefit individual happiness, and in turn they benefit broader humanity.  These benefits are incalculable, but they are very real.

Wrapping Up

Happiness and money are interrelated and entangled in many complex ways.  This web post provides only a high-level overview.  Coverage of many of the factors is cursory, and only scratches the surface.  It needs to be said that poverty doesn’t guarantee virtue, and wealth does not guarantee vice.

The headline results show that a lack of money reduces happiness.  Time and space do not allow exploration of topics like income and wealth inequality.  Money can be harmful if it becomes a source of personal identity or dysfunctional attachments.  Money generally does not produce lasting happiness beyond a short-term sugar high.  On a longer-term basis, however, it enrichens life and it can provide a greater sense of well-being, contentment and overall positive life evaluation.

Finally, from a holistic perspective, there are non-monetary factors that are hard to measure empirically, but that have immense intangible benefits.  Arthur Brooks, Harvard professor and past president of the American Enterprise Institute, summed these up best: “like kids taught to read, habitats protected or souls saved.”

Jeff Johnson, CFA

May 7, 2021

Cornerstone exists to provide a mix of investment information within the context of a Christian perspective.

For more information  See Cornerstone Investments