“Does Money Buy Happiness?” by Benjamin Cummings
by Rachel Li on Oct 25, 2018
Fall Newsletter Investment News, March 19, 2018 pg. 27
Does money buy happiness? Looking at some of the recent research on this topic suggest that advisers need to understand their client’s personality to really know the answer, and most importantly, how to help their clients align their spending with greater satisfaction.
A commonly cited answer to this question comes from researcher’s Daniel Kahneman and Angus Deaton, who analyzed nearly half a million survey responses about subjective well-being. They found that emotional well-being, which is how someone feels about their everyday experiences; increase as income rises, but only until about $75,000. After that, additional income doesn’t really have an effect. More income can improve your well-being – but only to a point.
Material goods versus experiential spending: That said, there’s more to the story that just income. Some researcher’s argue that how you spend your money can impact your life satisfaction. Psychologists Leaf Van Boven at the University of Colorado, Boulder and Thomas Gilovich at Cornell University found that spending on experiences (like concerts and traveling) rather than purchasing material goods (like jewelry and expensive clothes) made people happier. It turns out that the race to have more stuff may not follow the path to happiness. Why? The researchers suggest that positive experiences can be recalled later and even incorporated into one’s identity, not to mention that experiences shared with friends and family can improve our relationships and enhance life satisfaction.
At this point, we might conclude that spending on experiences is going to make us happier. But before you encourage any of your clients to spend a fortune on a world cruise, consider another study. Dr. Jia Wei Zhang and his colleagues found that achieving happiness from experiences may depend on whether or not you identify as a materialist or an experientialist. According to Dr. Zhang’s research, only those who identify as experiential buyers actually reported greater levels of happiness from experiential purchase.
Who Benefits? Not only does how we spend our money have an impact, but also who benefits from our spending.
Researchers Elizabeth Dunn, Lara Aknin and Michael Norton found that people who gave money to charity or to other reported “significantly greater happiness,” whereas spending on oneself didn’t really have an impact on happiness.
So maybe the key to financial bliss is to give it all away? Not so fast argue Graham Hill and Ryan Howell, researchers at San Francisco State University. They found that giving money to others only improved happiness scores for people who rated high on “self-transcendence values,” which is a fancy way of saying that people who have more concern for others improve their happiness when they give to others and charity. Not surprisingly, people who are more concerned about themselves don’t experience the same impact on their happiness when they give.
Role of personality: In the end, does money buy happiness? Researchers at the University of Cambridge have probably come closest to answering the question. In an article in Psychological Science, they suggest that money buys happiness when spending best matches our personality. By analyzing more than 75,000 bank transactions and linking them to personality types, they found that spending that psychologically “fits” one’s personality has a strong impact on life satisfaction than one’s income or overall spending.
What advisers can do: If maximizing happiness can be achieved by spending in a way that is consistent with personality, forward-thinking advisers might want to consider ways to discuss or even assess the personality of their clients. Advisers could take a formal approach and use an actual personality test, like one based on the Big Five personality traits. Of you might take a more informal route and simply discuss personality characteristics and spending with your clients.