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Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

For Frustrated Achievers, More Is Less

by Laura Rowley

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Posted on Thursday, July 12, 2007, 12:00AM

Economist Carol Graham studies globalization, market reforms, income mobility, and growth in developing societies. A senior fellow at the Brookings Institution and a professor at the University of Maryland, Graham doesn't think of herself as a happiness researcher.

But then she discovered that something funny was happening on the way up the economic ladder.

Success Is Relative

While studying economic progress in Peru and Russia, Graham found herself repeatedly stumbling over a group of unhappy success stories. For example, she was surprised to find that nearly half of Peruvian workers with the most upward income mobility reported that their economic situation was negative, or very negative, compared to 10 years prior.

Graham conducted an analysis based on comparable data for Russia, and discovered an even higher percentage of what she now calls "frustrated achievers." Other surveys have identified a similar pattern in urban China, she notes.

"By objective terms, they performed well in the labor market," says Graham, who presented her research on frustrated achievers at a conference at Italy's Siena University last month. "But their perception was that everyone has more than they do. They were concerned about relative income differences."

Mobility Changes Everything

Asked to rank themselves on a theoretical nine-step economic ladder, frustrated achievers placed themselves on a lower rung than their actual incomes would justify. And despite their successful climb out of poverty, they had a higher fear of unemployment than people below them on the ladder.

Graham speculated that economic volatility might be cause. Mobility was indeed unstable; in the period studied, 11 percent of middle-class Peruvians tumbled all the way back into extreme poverty. But such reversals of fortune weren't a problem for the frustrated achievers, who had less income volatility as a group.

So why were these up-and-comers unhappy? Graham suggests that their problems stemmed from "aspirations and reference norms" -- or, to use the vernacular, they couldn't help comparing themselves to the Joneses.

"Even though their income goes up by 20 to 25 percent, people's perception of where they are on the economic ladder matters even more to their happiness," she says. "We all assume mobility is a good thing -- but everything changes with your mobility, including your aspirations."

Not Keeping Up with the Joneses

The frustrated achievers studied tended to live in urban areas, where they were more likely to encounter "big visible winners in an unequal society at times of rapidly changing economics," says Graham.

In a separate study of 18,000 people across Latin America, Graham looked at their exposure to media -- where they got their news and how often. "People who had higher scores on the media index were much more likely to think that distribution of income in their country was unfavorable," she says. "The more you know, the more relatively deprived you feel."

The importance placed on relative income and reference groups can lead to an ever-rising bar of perceived needs, explains Graham. Boston College sociologist Juliet Schor, for instance, cites repeated surveys showing that more than half of Americans -- the richest population in the world -- say they can't afford everything they really need.

That's because, like the frustrated achievers in developing countries, frustrated achievers here at home don't look at the global picture. They look at the neighbors.

Misplaced Misfortune

Harvard researcher Erzo F.P. Luttmer examined geographic areas of roughly 15,000 people. All other things being equal, such as satisfaction with one's health and marital status, Americans who earned less than their neighbors were more likely to be unhappy, according to his paper published in the Quarterly Journal of Economics.

Moreover, researchers Andrew Oswald of England's Warwick University and David Blanchflower of Dartmouth found that when people make relative-income comparisons, they frequently look at those who have more -- and get upset by the unfavorable contrast. They also found that even if our incomes are rising, we're disappointed if the incomes of others are rising more.

Author Alain de Botton described the tyranny of comparison in his 2004 book "Status Anxiety": "If we are made to live in a draughty, insalubrious cottage and bend to the harsh rule of an aristocrat occupying a large and well-heated castle, and yet we observe that our equals all live exactly as we do, then our conditions will seem normal ... If however, we have a pleasant home and a comfortable job and learn through ill-advised attendance at a school reunion that some of our old friends ... now reside in houses grander than ours, bought on salaries they are paid in more enticing occupations than our own, we are likely to return home nursing a violent sense of misfortune."

Or, as John Stuart Mill observed in the 19th century, "Men do not desire to be rich, but to be richer than other men."

Not Everyone Can Be Bill Gates

The biggest difference between frustrated achievers in developing countries and those in the United States is in how inequality is viewed. Americans clearly live a media-saturated culture, where many people know that the average CEO makes more than 250 times the average worker's pay. But inequality is rarely discussed.

"Inequality matters to people because of what it signals," says Graham. "In Latin America, it signals persistent disadvantage for the poor, even though the data suggests there's more mobility than you would think. In the U.S., inequality signals the perception of opportunity -- everyone can be Bill Gates."

That's despite data suggesting there's less mobility in the United States than you might expect. Studies show that U.S. mobility is roughly on par with that of Europe. The newly formed Economic Mobility Project, a collaborative effort by both liberal and conservative think tanks, finds that U.S. incomes are stagnating, and the current generation of 30-something men has fallen behind their fathers' earnings.

Nevertheless, Americans don't focus on inequality largely because they tend to have enormous faith in their prospects. Consider a study by Princeton economist Roland Benabou: He found that more than half of Americans think they'll be above the median income in the future (even though, obviously, that's mathematically impossible).

Keep on the Sunny Side

Before trying to slap some collective sense into the nation's cheerfully deluded optimists, it's worth noting that happy people actually do better economically.

Graham, for instance, studied the happiness effect among Russians. "Happier people earned more money and were healthier five years later," she says. "One criticism of this approach is that all we are seeing is people's ability to predict the future -- they are happier in 1995 because they predict they would be wealthier in 2000." But the turmoil in Russia's economy makes it the perfect case study, says Graham: "How many Russians could predict how they would be doing in the year 2000?"

Separate studies find the same effect with happy Americans, who have more positive outcomes with work, relationships, and health, according to a bulletin published by the American Psychological Association.

Bottom line: To avoid being a frustrated achiever, don't compare your income to anything except your own goals. And look on the bright side. Otherwise, a negative attitude may eventually create a sour economic reality.

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27 Comments

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  • Yahoo! Finance User - Friday, July 13, 2007, 6:51PM ET  Report Abuse

    • Overall: 4/5

    Penelope Trunk, come here to learn how to write articles and give advice!

  • Douglas - Friday, July 13, 2007, 5:23PM ET  Report Abuse

    • Overall: 5/5

    I live out in the SF Bay Area. Larry Ellison (the richest Californian) is up the road and the two boys (billionaires as well) from Google work a block away from my office. Woodside, Palo Alto and many rich neighborhoods are nearby. I tons of people to compare myself too if I really want to shoot for number one in terms of net worth. I also see the hordes of people who have tried and failed. The sub prime disaster is hitting hard out here. The amount of debt the average person carries out here is unbelievable as well. But people keep thinking that it won't happen to them. You ask them why and they don't have a very good explanation about why they will succeed. Larry Ellison and the Google Boys were exceptionally driven and lucky early on in their lives. For those of us over 20 (way over) you might as well consider reality and develop goals that you can achieve.

  • Samwise - Friday, July 13, 2007, 4:48PM ET  Report Abuse

    • Overall: 2/5

    Dead wrong, Chris. If everybody lived to 75, started at the same wage, and got the same raises, everybody would spend a significant portion of their life above the median income level. That would just coincide with their being above the median age.

  • Brian - Friday, July 13, 2007, 4:04PM ET  Report Abuse

    • Overall: 5/5

    This is the article I've been waiting for!!! I love that reference by John Stuart Mill, "Men do not desire to be rich, but to be richer than other men," since this is the root cause of many of societies problems. This insecure quality built in us human beings is the reason why so many of us feel depressed about our current position in society, why we feel inadequate and put unnecessary pressure on ourselves to collect things that take away time that could be put to better use with our kids, family, friends and health. The bottom line as stated is to just think what you find to be a truly happy lifestyle for yourself, if applicable those around you as well, and find that to be your true sense of happiness. I found for myself that making six figures as an investment banker was not something that was making me happy even though "the neighbors" thought it would since I had no time spend on myself in a gym, bar, etc. and with my family/friends. That is a simple example I can think of where I sacrificed $ for happiness. Now looking back years later at what my colleagues there and I have done, I feel that was one of the best decisions I made and some of them felt they made the right decision sacrificing time for money. Of course some of them thought I was smart and some dumb depending on what their goals were, but overall I made the decision that myself happy and not the neighbor. Thank you Laura for such an eye-opening article :)

  • Anita M - Friday, July 13, 2007, 3:47PM ET  Report Abuse

    • Overall: 5/5

    Very interesting and especially relevant in the US where we are subjected to the flashy lives of the rich and famous in the media on a daily basis. I wonder if there's any difference in attitudes between people who have experienced poverty and those who have not. I grew up poor and know how to survive with little money, if necessary, but I think of it as an incentive to make sure that I don't have to do that again if I can help it. I like making my above-the-median income, though I always wish to make more, just to add to the cushion in case of another economic downturn, like in 2001. My views on this are probably different from someone who grew up in a more moneyed environment. Would someone who has never experienced poverty fear it more or less, I wonder. Great thought-provoking article!

  • ChrisS - Friday, July 13, 2007, 1:45PM ET  Report Abuse

    • Overall: 2/5

    Jon - she is correct in her statement that it is mathematically impossible to have more than half of the poppulation with higher than the median population. The definition of median is the person who represents the 50th percentile of the quantity of of sample, not the 50th percentile of the average of the values. At a point in time, it is mathematically impossible for more than 50% of a sample to have values higher than the median. The median of salaries in 2007 is not the same as the median of salaries in 2002, and you can't say that more than 50% of the salaries in 2007 are higher than the median salary of 2002. It would mean nothing. I'm sure close to 100% of the salaries today are above the median of salaries in 1820. It's a point in time reference.

  • Yahoo! Finance User - Friday, July 13, 2007, 1:26PM ET  Report Abuse

    • Overall: 5/5

    This is one of the best articles I have read recently and it is so true. Being in a materialistic world people forget to respect what they have and always seem unhappy. One thing is for sure, people can still achieve great things in their lives without being frustrated by always comparing with Joneses.

  • Mark F - Friday, July 13, 2007, 1:07PM ET  Report Abuse

    • Overall: 1/5

    Whoops. I clicked 1 star. I meant to click 5 stars.

  • Steven - Friday, July 13, 2007, 1:04PM ET  Report Abuse

    • Overall: 5/5

    Great story and message. There were some significant portions in the middle though that seem disconnected, at least to me.

  • Yahoo! Finance User - Friday, July 13, 2007, 12:22PM ET  Report Abuse

    • Overall: 5/5

    Although wishing to be rid of misery, They run toward misery itself. Although wishing to have happiness, Like an enemy they ignorantly destroy it. -Santideva

  • Yahoo! Finance User - Friday, July 13, 2007, 12:09PM ET  Report Abuse

    • Overall: 5/5

    A oasis of normal chomosome count in the vast yahoo personal finance desert of Robert Kiyosaki articles.

  • Edward - Friday, July 13, 2007, 12:00PM ET  Report Abuse

    • Overall: 5/5

    As Mencken said "A wealthy man is one who earns $100 a year more than his wife's sister's husband." You need to break yourself of that kind of logic & focus on what's important to you personally.

  • Yahoo! Finance User - Friday, July 13, 2007, 10:16AM ET  Report Abuse

    • Overall: 3/5

    A lot of interesting info but the first 2/3s of the article is a tough read. I like your stuff Laura but when referencing other studies you need to get to the point quicker and somehow make it more interesting to read.

  • David C - Friday, July 13, 2007, 9:57AM ET  Report Abuse

    • Overall: 5/5

    Great story Laura!!! I always love your articles!

  • xkrebstarx - Friday, July 13, 2007, 9:10AM ET  Report Abuse

    • Overall: 5/5

    Its true.

  • Jon - Friday, July 13, 2007, 9:00AM ET  Report Abuse

    • Overall: 3/5

    Good article. One correction. It is mathematically possible for more than half of Americans to make above the median income at some point "in the future". In fact, because people are cycling through the workforce it would be mathematically possible for all Americans to make more than the median income for the second half of their careers if they all made below the median for the first half of their careers.

  • Dave - Friday, July 13, 2007, 8:52AM ET  Report Abuse

    • Overall: 5/5

    A well written, researched article which can make you think about your life and behavior - unlike the witless Penelope Trunk

  • Yahoo! Finance User - Friday, July 13, 2007, 8:25AM ET  Report Abuse

    • Overall: 4/5

    Very good article - and most people seem to agree. One thing I find interesting is that Penelope Trunk made a similar point as part of her column a couple of weeks ago and she got crucified for it. She basically said that to be happy, one should make at least the median income of their area. She further said that she is now happier making less in an area where incomes are lower than she was making $200k in NYC. Where Penelope came short of Laura Rowley is that she made it seem that the solution was to just move elsewhere, where Laura said that the solution is a change in one's mindset. I would guess that either solution would work, but truly changing one's way of thinking (and overcoming the effect of media, etc.), while probably a healthier way of dealing with it in the long run, is much more easily said than done.

  • awanish - Friday, July 13, 2007, 7:35AM ET  Report Abuse

    • Overall: 4/5

    A very good reminder of what success is all about.

  • followlane - Friday, July 13, 2007, 6:57AM ET  Report Abuse

    • Overall: 5/5

    Good article. I liked the bottom line which summaries the formula for happiness.

  • Yahoo! Finance User - Friday, July 13, 2007, 6:47AM ET  Report Abuse

    • Overall: 5/5

    I find this story fascinating. I have more than my neighbors, even though I do not have much. I am very happy about this. I would be reluctant to move where the people are more upwardly mobile. I would feel left out. My children which make much more than I do are keenly aware of how others around them are doing. The thing I like about my place is, virtually all the money I have was given to me. I didn't earn anything, so compared with all the other slackers in the world, I've done well. In addition, I have done well health wise, take good care of myself, and when one of my peers takes ill, I say, he should have been more like me. I was on the fast track at one time, fancy University, fancy car and money, everybody wanted my car, my money, now that has long since gone, and I feel very good about it. I went camping with my children and their families. I couldn't help but notice the expensive boats and everybody showing what they had. I hope my children can concentate on the important issues, like education and finding their own satisfaction in, "what they can do whether than what they have", ALTHOUGH THEY HAVE LARGE HOMES, making that a priority can be very self defeating, there's always someone out there with a larger one. Thats really about it, I've found that the most friendly appearing people, are the most well to do. However, it is only a superficial look rather than an inner feeling. I invited one of them to my very modest home, they declined. They look at having a friendly look, like the Queen of England looks at waving at her admirers, it's just something one does. I remember one time making a few thousand in the market in just a few hours, I didn't feel more well off at all it was just a few numbers on a brokerage account, if I had taken the money and bought a new car and somebody commented on what a nice car I had, then I would have felt more well off. It's not the money, It's what it can do that makes a person feel prosperous. So, now I've said it all. I'm going to get in my car with my initials on the platem motor down to the health club, work out, check the market while I'm riding the bike, go home check my account and go to the grocery store at night and the check out cashier will see my nationall championship ring in football, it's not mine, but they think it is, so it's not what you are, it's what they think you are that counts.

  • gjor - Friday, July 13, 2007, 6:33AM ET  Report Abuse

    • Overall: 4/5

    "Tyranny of comparison" is an excellent phrase for describing how most of us make ourselves unhappy.

Showing comments 6-27 of 27<< Previous
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