Can Money Buy Happiness?

Only if you know where to shop, goes the old punch line. But a Nov. 10 Wall Street Journal article by Andrew Blackman cites new research on the long-argued subject that is worth riffing upon. It supports my cocktail party theory that enough money to meet basic needs is mandatory, but more than that has a diminishing happiness factor.

Let’s stipulate up front that money has important uses in this world; a measure of value, a medium of exchange, and a store of potential. In large quantities it is a lever of power, both for the superrich individual and for nations.

For PMD’s focus on personal finance, money’s utility and its means to “happiness”/satisfaction as you might define them, are our holy grails. So let’s briefly review Blackman’s conclusions from his citations and see how they might help us in our daily lives. We have to financially plan, as is often studied in these pages, but, not to be too Zen about it, we also need to balance how to make the best of each day as well. You might remember Aesop’s ant and grasshopper parable.

The overall conclusion Blackman reaches is that, once our basic needs are met, loosely defined, we are the happiest giving money to others. And when it comes to spending our discretionary money on ourselves, buying time, buying experiences surprisingly beats out buying material goods, for the length and depth of satisfaction, particularly upon retrospection.

This last conclusion is the most interesting, as it goes against intuition, so let’s parse it out. The cited research suggests that experiences tend to meet more of our underlying psychological needs; hence the later, higher value of buying experience versus buying things. We perceive anticipating an experience as exciting, especially in the planning. While the imminent purchase of material goods often yields a sense of anxiety and impatience.

The rub seems to come when people intuitively say “But then I will have a material thing that lasts, not just a memory of past activity.” Blackman cites this response as a “huge misforecast,” because it turns out that humans adapt to material goods fairly quickly. Isn’t that a bummer? So much for that new Ferrari….

Now we all know that that things that have variety, novelty and surprise are some of the great spices of life, but, here too, the joy is fleeting. We still keep chasing them all through our lives though, don’t we?

Some useful additions from Blackman include the fact that these findings appear to hold up across varying communities around the world. Another is that savings are good for happiness and debt is bad for happiness. I hope that they didn’t spend too much time or money on that one.

Further, although earning more money somewhat enhances our well-being, giving it away, even a little, particularly in a way that has measurable impact, is a sure boost to happiness, it appears.

There seem to be 2 measures of happiness. The first is “evaluative,” a sense that your overall life is good, satisfying. In this way, rich people tend to be happier than poor people.

The second is “affective,” or how often we experience positive feelings, like joy, affection and tranquility. Here the results are similar.

The bottom line, as Blackman states, is that a little money makes a big difference when you do not have much and have essential needs to fulfill. But, as you rise above this level, about $75,000 in the US it turns out, the curve flattens, and it becomes increasingly difficult to “buy” happiness. Not that we don’t persistently try. And the resultant “keeping up with the Joneses” feelings seem to focus much more on possessions than experiences, he reports.

So, of the available takeaways, I like the idea that we should be grateful, be happy, and enjoy each day. Hug your kids, visit your friends, and take that long-delayed vacation that you deserve. You’re welcome.