This Just In: Apparently Money Can Buy Happiness
According to the website BrainyQuote, the famously reclusive Howard Hughes coined the phrase Money can't buy happiness. In reading about his life of producing movies, racing airplanes and dating glamorous women, I note very few times when he did, in fact, seem to have lived happily. Evidently even a fortune of two and one-half billion dollars wasn’t enough to do the trick, at least not in his case.
Actor Mary Catherine Collins, perhaps more familiar by her stage name of Bo Derek, has a slightly different take on the subject: Whoever said money can't buy happiness simply didn't know where to go shopping.
These quotes came to mind when I discovered a book called Happy Money: The Science of Spending by Elizabeth Dunn and Michael Norton. The authors began with data collected earlier by the Gallup Organization which suggests that people with higher incomes tend to be in better moods most days then those with lower incomes. I doubt if that’s much of a surprise but you might not suspect that the beneficial effect of higher income tapered off as incomes approached $75,000. Earning more than that did not appear to provide much in the way of additional happiness. The original research is about ten years old but, again according to the Gallup Organization, the premise continues to hold true.
Dunn and Norton are college professors who have both the time to consider such topics and grad students to help develop their theories. They began their own research by having students survey people with different levels of family income. Perhaps not surprisingly, one of the initial findings was that people with incomes of $25,000 estimated that they’d be twice as happy if they made $55,000 instead. However, those actually making $55,000 reported being only 9% happier than those making $25,000. Nine percent is certainly better than nothing but that doesn’t seem like much of a payoff for the extra effort and/or education necessary to more than double a family’s income.
Many people think of having more money as being able to buy more things for themselves, perhaps newer cars, larger TVs or nicer vacations. However, Dunn and Norton’s research suggests a very different approach to using money to buy happiness: giving it away. They had students give people $20 bills with one of two instructions: spend it on yourself or spend it on others. They later found that, world over, people who were given cash to spend on others reported greater happiness than those told to spend it on themselves.
Steven K. Scott, author, speaker and founder of Total Gym Fitness, also has an opinion about money’s relationship to happiness. Money only buys a small measure of happiness, and then only for those who have the wisdom to use it properly. Perhaps Scott combines the best of both Hughes and Collins in that statement. Clearly people need enough money to feel secure but then what? In Scott’s words, how is money to be used properly?
Over the years, we’ve learned that encouraging people to spend on experiences instead of things seems to lead to greater happiness. Those who focus on things tend to need another purchase before long to remain happy. Those who spend on experiences are able to reflect on their pleasurable activities, whether travel with family or carefully made gifts, and seem to be more satisfied. According to an article in Forbes Magazine, we’re not the only ones to notice this. Summarizing research published by San Francisco State University, such things as making gifts (even small ones), indulging in inexpensive luxuries (such as regular massages or spa visits) and learning a new skill (would you prefer quilting or skydiving?) all are more likely to lead to greater satisfaction than buying more things. Would you get more lasting pleasure from buying a new set of golf clubs or giving each of your golfing friends a sleeve of the very best golf balls?
Fortunately, many of our clients have sufficient resources to meet their needs and beyond so they often choose to spend some of their money helping others. Being full-service planners, we often help with these decisions. First, we act as a sounding board, trying to get an idea of the client’s wishes. If a client doesn’t already have a specific charity in mind, we can research organizations in different areas: the arts, the environment, etc. We often use databases to research public charities comparing service areas and efficiency (how much of what is given is actually spent on the cause) in order to guide a sound decision. Based on a client’s full financial picture we usually recommend the source of the gift, perhaps as a Required Minimum Distribution from an IRA, a gift of appreciated assets or simply cash.
How far would someone go to become happier? Would moving to another country help? Every other year, the United Nations updates its list of the happiest and unhappiest countries in the world. In the most recent survey, Norway and Denmark come in first and second and three other Scandinavian countries are in the top ten. Before you start packing, remember that all anyone has available to spend is her or his after-tax dollars and Norway and Denmark’s highest marginal tax rates are 39% and 60.4% respectively. Considering the SF University research, maybe a Scandinavian vacation would lead to more happiness than moving. By the way, the United States ranks 14th in this list of 154 countries, so perhaps we’re close enough to the top so as not to require a move to achieve further happiness. Of course, their criteria may not be the same as yours, so results may vary.
In closing, let’s return to Steven Scott for one more quote: When people make money honestly, meaning they create and deliver a product or service of real value to offer others, it is the process itself that brings happiness more than the money.