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Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

A New Index for Financial Well-Being

by Laura Rowley

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Posted on Wednesday, April 9, 2008, 12:00AM

In the 1880s, British economist Francis Edgeworth proposed creating an instrument called a "hedonimeter" that could measure, physiologically, how much pleasure a person derived from a specific choice. Edgeworth suggested that the hedonimeter would expand utility analysis from theoretical economics to the real world, helping individuals maximize their welfare and societies create better public policy.

The Hedonimeter Reborn

A group of researchers is reviving the notion of the hedonimeter, at least philosophically. They've developed a method to measure, compare, and analyze how people spend and experience their time, across countries and over time. The idea is similar to Edgeworth's -- if we have a quantitative way to measure which activities bring pleasure to most people most of the time, we can make better decisions to enhance our well-being.

"We're really interested in describing people's lives as they experience them, as opposed to theories about their lives, and from that get an overall measure of how people are doing," says David Schkade, professor of management at the Rady School of Management at University of California, San Diego.

The study, co-authored with Nobel Laureate Daniel Kahneman and Alan Krueger of Princeton; Norbert Schwarz of the University of Michigan; and Arthur Stone of Stony Brook University, will be published by the University of Chicago Press later this year.

What's Your U-Index?

What does this have to do with money and happiness? Researchers say people can manipulate 40 percent of their happiness through their day-to-day choices (the other 60 percent is natural disposition and circumstances, such as health and wealth). While many decisions are no-brainers -- going to see a movie is more fun than taking out the garbage -- most of us are faced with tradeoffs in utility that aren't so clear-cut: Live close to work in a smaller house, or commute an hour each way to get a bigger one? Take the higher-paying job with travel away from family, or the lower-paying one close to home? Spend extra time volunteering, or selling stuff on eBay to make extra cash?

To illustrate their approach, researchers asked 4,000 Americans to track how they spent their day, then isolated three random events and interviewed them on their emotions --pleasant or unpleasant, passive or active. They summarized the data in something they call a "U-Index" ("U" for unpleasant).

"We're trying to come up with a meaningful way to talk about well-being that sounds like the poverty rate or the unemployment rate," says Schkade. The approach captures how people feel about their tasks shortly after they perform them, avoiding the brain's tendency to misremember what actually occurred. The higher a person or group scores on the U-Index, the greater the unhappiness.

Driven to Unhappiness

Study participants were happiest when socializing, playing sports and exercising, doing spiritual activities, and relaxing. Watching television ranked in the middle, as did food preparation and volunteering. The most unpleasant tasks included housework, working for pay, household management, receiving medical care, education, and caring for adults.

"One of the worst activities for all the people we survey is commuting. The only thing that ranks below commuting is commuting with your boss." says Schkade.

His advice for someone deciding between a 30-minute commute from a tiny, expensive house, and a 90-minute commute from a McMansion: "Commuters are not masters of life, their schedule is. If you can transfer two hours to something more pleasant, that can make a big structural difference in how good life is. We don't have the causal thing nailed down completely, but certainly our research begs for people to make that tradeoff."

The More the Less Merry

In addition, the study found conflicting trends related to the pursuit of ever-higher income and education. People in households with annual incomes below $30,000 spend almost 50 percent more time in an unpleasant state than do people with incomes above $100,000. On the other hand, a historical comparison found that unhappiness has declined more for men with a high school degree or less than for men with a college degree or higher. (The result corresponds with a recent study that found leisure time has increased more for the less educated than the highly educated.)

I was discussing this with a friend recently, who seems to have found the ultimate sweet spot in his career. He makes a comfortable living, works fewer than 40 hours a week, is highly respected at work, and has a great boss, lots of autonomy, and no employees to supervise. He knows he could land his boss' job at another company and get a whopping raise. But he would have to travel, supervise people, work longer hours, and answer to higher, possibly more demanding powers.

"People who have more income typically have more responsible jobs," says Schkade. "That extra money comes with additional things that are not as pleasant: They can't leave at 5 p.m. when the whistle blows; they might have stress because they have to hire and fire people. That's why changing features like income and education don't seem to have as much of an effect on happiness as we think, because they have tradeoffs. When we think about them, we only think about the good things."

GNP ≠ National Well-Being

Another benefit to the U-Index is getting a more accurate picture of things we tend to idealize -- like parenthood. "Some of the least happy people we see in surveys are mothers with young children," says Schkade. "We think it's because they are working and stretched too thin."

That's not to say the index would make you decide against having children. But you might recognize the near impossibility of combining toddlers with a tortuous commute to work, and make informed decisions about where to work, where to live, or what kind of child care to use -- and thus avoid learning through nightmarish experience.

From a public policy perspective, the backdrop of the U-Index is a recognition that traditional ways of tracking a country's progress -- gross national product or national income measurements -- don't provide a full picture of national well-being. As Robert Kennedy put it in a 1968 speech: "Our gross national product ... measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile."

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  • luis - Monday, April 14, 2008, 11:57AM ET  Report Abuse

    • Overall: 5/5

    I think the hedonimeter is Jeremy Bentham an also english 19th century economist not Edgeworth whose main fame is from general equilibrium ideas.

  • Yahoo! Finance User - Monday, April 14, 2008, 10:51AM ET  Report Abuse

    • Overall: 4/5

    Reading "Case for Christ" was really cool for me too. But what changed my life was when I actually read the entire Bible. Jesus is alive and judged us already!

  • MatthewD - Sunday, April 13, 2008, 8:29PM ET  Report Abuse

    • Overall: 5/5

    Good article, as usual. Muki, Jesus is a myth??? Try reading a book, dude. Try "A Case for Christ" by Lee Strobel or "Evidence That Demands a Verdict" by Josh McDowel. Two previous athiests. Then tell the world that Jesus is a myth.

  • cowboy47201 - Sunday, April 13, 2008, 8:22PM ET  Report Abuse

    • Overall: 4/5

    I liked the comment by one of the posters who said he is aware he is trading off things. My view is that we are always doing just what we want to do. Like the other poster, he said he does not like doing the laundry but likes wearing clean clothes. We are doing what we want to do, even if we may not like it at times. I find if you can understand the tradeoff decision and stop whining and fighting what you are choosing to do, then life gets easier and you can be much happier. If you think you are not always doing exactly what you want to do, then you have not examined your own thinking very well.

  • Emir - Sunday, April 13, 2008, 8:17PM ET  Report Abuse

    • Overall: 5/5

    I liek the guy who points Jesus. If he only new how much of a myth Jesus actually is. But what ever works for him. Right.

  • DangerX - Sunday, April 13, 2008, 6:03PM ET  Report Abuse

    • Overall: 5/5

    In a time where yahoo has accustomed us to folks who don't know what they're talking about and are so detached from reality like Ben Stein, it's nice to see someone who gets it.

  • chicago3200000 - Sunday, April 13, 2008, 5:47PM ET  Report Abuse

    • Overall: 2/5

    This is a rather strange article. I think the point is that you must balance between what makes you happy and what does not but it ignores what I feel is a very important point. I hate doing laundry-ie housework, but I do like to wear clean clothes. I work and have a "short" ten mile commute to work. Unfortunately, it is through heavy traffic and takes me a good half hour to get to work. But, I like to travel and that takes money. A person needs to figure out what is important to them and figure it out early. There is also more to this than just what makes you happy. While important, I think this a rather selfish idea. To me, each person has a responsibility to do their very best to move this country forward. We owe that to our predecessors that fought so hard to make this country what it is today. The least we (as citizens) can do is finish high school. As far as the article goes, I really hate the high school example. Sure, the high school dropout may be happier. But, it can sure take the country downhill fast. At present, one-third of the kids are dropping out of hs. That is simply unacceptable nowadays.

  • David - Sunday, April 13, 2008, 9:47AM ET  Report Abuse

    • Overall: 2/5

    If you want you money to make you happy, give it away! Life is an inner attitude, and I think more than 40% worth. I prove that by trying to remember what bothered me the most a year ago. OK, the commute is still awful...but most of the unpleasant things are gone forever...so why worry about little things today? Also, any mention of "happiness" with mention of Spirit (Jesus is my Spirit) is bothersome. In his teachings, Jesus focused on money alot. Its a good read, start with the book of John. Anyway, for me happiness is not the goal. At the top of the mountain is GRATITUDE. God Bless!

  • Yahoo! Finance User - Sunday, April 13, 2008, 8:06AM ET  Report Abuse

    • Overall: 4/5

    definitely something to think about.

  • Yahoo! Finance User - Sunday, April 13, 2008, 12:32AM ET  Report Abuse

    • Overall: 4/5

    It's a shame money doesn't buy happiness. It's also a shame money can't buy people's respect. If it could buy happiness, I'd do more for people in my life who need to spend money to feel happy. If it could buy respect, I wouldn't feel empty for helping people and feeling like what I've done isn't appreciated very long...I worked for an apparel manufacturer for many years. The bosses got nice raises and bonuses every year. Meanwhile, I was supposed to feel fortunate to get 2% raises to eventually raise my salary to $36,000 after 10 years. I felt like I would never get ahead. Greed by my bosses made me hate the corporate grind. I don't know how these people can look in the mirror everyday. I'm glad I'm out of that world.

  • raymondw - Saturday, April 12, 2008, 10:29PM ET  Report Abuse

    • Overall: 5/5

    from previous comment: "I think this article misses the mark on "Financial Well Being". Finance deals with money, period." --- I somewhat disagree. Money doesn't buy you all happiness, money is only good to a certain degree. It is all the other things and having the love ones close us and not having to deal with a badly tempered boss that make us happier. I would be just as happy earning $30,000, no mortgage, no gas expense; just simple lifestyle and not materialistic at all. I have seen clients with over $100Million net worth, so what? Money does not equal to happiness. I see my client being sued by his wife and he feels so sad right now. So, money is only good up to the point, where we don't have to worry about food and living. The rest of the happiness come from what we love to do and whom we love to have with us.

  • Yahoo! Finance User - Saturday, April 12, 2008, 2:34PM ET  Report Abuse

    • Overall: 2/5

    I think this article misses the mark on "Financial Well Being". Finance deals with money, period. Focus on the ability to live within your means and you will have financial well being. But to imply that the government should begin measuring our country's progress based on happiness is to head the wrong direction. If people are unhappy there can be any number of reasons beginning with what they value, material goods or people, things or experiences, self or others. But those values are a product of society, not public policy. teach me to live within my means, or the expand my means, but do suggest the Government teach me what to value.

  • Yahoo! Finance User - Saturday, April 12, 2008, 2:14PM ET  Report Abuse

    • Overall: 5/5

    I think the article brings up a fascinating new index to augment the existing consumer sentiment surveys in existence now, which for those of you who do not know, are an important indicator for many traders to foretell how much consumers and business will spend. It's interesting to read the lower-rating comments...to see those reader's express disappointment over what they think the article said, not what it actually said. For example, that Laura should have obtained a Liberal quote from Robert Kennedy. Who cares? If you interpret this as an attempt to force all readers to swing left, you've completely missed the point of the article and of the new index it's trying to explain, revealing your own antipathies towards new ideas....in this case, a new metric. And that 'point of the article?', aka 'how does it help me make money?' Have you ever tried trading stocks or options while you were emotional? Have you ever bought something...like a house...signing an offer, or supposedly reviewing your HUD-1 at the title agency while you were distracted? 100 years ago, most people slept at least 8 hours per day, every day, and performed physical, agricultural-related work, hence the famous named "non-farm payrolls" report...because only 2 or 3 gen's ago, we were all predominantly working to make food for ourselves. It was toil, but you could see what you produced. Your body stayed in better shape. We ate more balance meals. And we certainly didn't commute far, if at all, or watch television. BTW, that was kindof interesting...that watching TV caused only medium 'happiness'! For some of us, a root canal would be preferable to watching prime time. But I digress. I've had a wonderful job for 20 years, in technical support. The reason it is so wonderful is because I have learned to keep an open mind, and realize that after reading emails, manuals, articles, heck, even pamphlets, that I probably skipped over a couple of words too quickly, jumping to an incorrect conclusion. The commenter who read 'single mother', where in fact Laura said 'mothers with young children' -- I did the exact same thing. I too read that as 'single mother', although that's not a material point to the article.

  • Richard - Friday, April 11, 2008, 10:24PM ET  Report Abuse

    • Overall: 5/5

    I'd throw this in the catagory of choosing to join the military. You don't get paid alot of money, the work is hard and the hours can be long. But the satisfaction can be unlimited in the traveling, the people that you help, the others that you get to meet, etc. The one and two star folks have probably never had to scarifice to make ends meet. Doing the right thing and sacrifice are usually one in the same. You make the choice and just do it. The satisfaction comes in knowing that you did everything that you could do. Sometimes you win and sometimes you lose. That's life baby......

  • Yahoo! Finance User - Friday, April 11, 2008, 12:18PM ET  Report Abuse

    • Overall: 5/5

    gsanton - Get off that phone and learn to read. She didn't say single mothers, she said mothers with young children and mentioned "they are working and stretched too thin". You don't think it's raising those kids, even if you don't get paid for it? (Sheesh, and I'm the father.) The best thing we ever did was have our two kids. Aside from the intrinsic rewards of watching the little guys grow up, taking on such a large burden as parenting FORCES you to look at these issues: "how do I spend my time to be as happy as possible?" When the little guys are hungry, you can't fart around, you have to make your own choices and get on with it. No matter how much money you make, there are only 168 hours in a week, and you've got to figure out how to arrange your life in the way that makes YOU most content. This is a great article; anything that provides us with wisdom on how to make those choices better is good stuff!

  • David - Friday, April 11, 2008, 9:43AM ET  Report Abuse

    • Overall: 5/5

    Quality trumps quantity almost every time.

  • SandyLady - Friday, April 11, 2008, 8:42AM ET  Report Abuse

    • Overall: 5/5

    Inner happiness DOES NOT COME from getting another sale, or buying another whatever, the pleasure/success meter only blips once, until it must be fed again. There's a whole lot of happy and content people living fulfilling and contributing lives who DON'T own the most expensive car, or live in a McMansion....or who even WANT to, if given the choice! I personally know several multi-millionaires who live very uncomplicated and affordable lives by CHOICE and are extemely happy not having to prove their wealth to anyone....all the while contributing their life knowledge (more valuable than money) to those fortunate to know them.

  • Yahoo! Finance User - Friday, April 11, 2008, 8:05AM ET  Report Abuse

    • Overall: 4/5

    One star people? It's too bad you even read columns like these and do nothing with the observations.

  • Yahoo! Finance User - Friday, April 11, 2008, 3:02AM ET  Report Abuse

    • Overall: 2/5

    Oh, gsanton, you are such a dweeb. Being willing to work hard and build an income to support yourself and your family is not the same thing as being a competitive person. I imagine your folks saw the benefits of their efforts but were not our to beat someone, which is what competitive means. As for holding meetings on the phone in your car, your contribution is limited by the background noise that makes it impossible for anyone to get anything constructive done. If you have self respect, you will get nothing out of motivational CD's and increased sales is not in itself a source of satisfaction, which is what the author is talking about. Listening to classical music may be satisfying, but looking at potential properties tobuy will not. And as for single mothers, many have that life thrust upon them and do the best they can under tough circumstances. To say what you say indicates you are a misogonist (a person who does not like women, primarily due to 'mommy issues'. Also, I have never met anyone intent on being a 'winner' who did not secretly believe they are a loser. Who else is trying so hard to prove otherwise? The article is about achieving satisfaction with your life, not about achieving material success at any cost. You understand the distinction?

  • GeorgeA - Friday, April 11, 2008, 2:05AM ET  Report Abuse

    • Overall: 1/5

    First of all, nothing personal Laura, but this column is extremely weak. It presumes that if you are not competitive, that it's "ok". Well, it's actually not "ok" because it assumes that these losers you interview or write about won't have anyone nipping at their heals to get their "content" asses out of the way. This country is based on extremely hard work...I think of my parents who are Greek immigrants and came here with NOTHING and built a family business working 100 hour workweeks at a minimum.....they were very happy most of the time...they enjoyed working hard and seeing the fruits of their labor. It's called SELF RESPECT. You make fun of people commuting but did you know that the following activities can now be achieved while driving?: 1) conducting meetings on your cellphone with bluetooth/handsfree 2) listening to motivational cd's (think increase in SALES $$ more happiness) 3) listening to your favorite classical music or other music 4) looking at potential properties to buy with all that money you are making 5) if you have a convertible (LOTS OF FUN) I think you get my point...and one last thing towards the end of your column: You shouldn't condone single mothers! That's right! Since when did we start accepting this single mother b.s. that they don't need a man in the house? Get with it folks, it takes two to tango...a woman should NOT have a baby without being married for a million reasons...otherwise the baby is a victim and already has a huge unfair shot. A flawed column in every sense of the word. This is the greatest country ever known to mankind...and the system is designed for you to make millions of dollars...so get up off your ass and stop making excuses for being a loser!

  • Yahoo! Finance User - Thursday, April 10, 2008, 9:44PM ET  Report Abuse

    • Overall: 1/5

    not sure how this article helps me make more money?

  • Yahoo! Finance User - Thursday, April 10, 2008, 9:31PM ET  Report Abuse

    • Overall: 5/5

    I think this article deserves 3-4 stars but the Yahoo rankings are jacked up and from now on I am giving more or less stars to even it out. 5 stars for Laura because she has done a good job.

  • Joseph - Thursday, April 10, 2008, 8:01PM ET  Report Abuse

    • Overall: 4/5

    Well written article.

  • Esther - Thursday, April 10, 2008, 5:39PM ET  Report Abuse

    • Overall: 5/5

    Young people should take heed...be wise in selecting your "profession"..It is important that MOM stay home to raise the child until 3rd grade...not a baby sitter/plus learn to make do..live on one salary..we did..and we were able to reap benefits and a comfortable living.

  • Yahoo! Finance User - Thursday, April 10, 2008, 3:57PM ET  Report Abuse

    • Overall: 1/5

    The subject matter of this article is pseudo-science at best and is supported by the blatently liberal quote "As Robert Kennedy put it in a 1968 speech: "Our gross national product ... measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile." Neither the 'U-Index' nor the comments of the late Robert Kennedy have much to do with reality...they are simply wishful, non-scientific thinking. They should be encouraged in children to ensure the imagination flourishes, but not tolerated in grown adults. Wake up to the real world.

  • robert - Thursday, April 10, 2008, 3:17PM ET  Report Abuse

    • Overall: 2/5

    the only thing that would make me feel worse than a commute to work is an artificial and arbitrary, therefore meaningless, index to tell me how unhappy everyone is.

  • Heroine Worshipper - Thursday, April 10, 2008, 2:54PM ET  Report Abuse

    • Overall: 5/5

    "Commuters are not masters of their life, their schedule is" If that was true, your government wouldn't be producing $300 billion to keep Stockton houses from losing value.

  • Yahoo! Finance User - Thursday, April 10, 2008, 2:24PM ET  Report Abuse

    • Overall: 3/5

    After spending 8 years commuting 90 miles each way through heavy traffic and constant road construction I can agree this is very bad. But living on a tiny lot or in an apartment or condo with noisy neighbors and rowdy kids nearby and strict covenants and rules forced upon you is even worse. Find a job in a small town or rural area where you can have a short commute and still have some land and privacy, the greatest gift you can give yourself even if it require a cut in pay. Why live where life is hell?

  • Barry - Thursday, April 10, 2008, 1:07PM ET  Report Abuse

    • Overall: 4/5

    This outstanding article is another lesson in short-term pain, long-term gain. Studying unhappiness without also studying the desired consequence of the behavior is fruitless. In your story last week, the ant made the rational choice to forego short-term happiness by working diligently all summer for long-term happiness when winter came. The grasshopper irrationally traded short-term gain for long-term pain. Our government and certain segments of our society have not learned this lesson. Government raids the Social Security Trust Fund; individuals overeat and fail to exercise; students waste opportunities to learn; employees fail to invest in a retirement account; and individuals engage in addictive behaviors such as drugs, smoking, and gambling - behaviors that produce short-term happiness and long-term unhappiness. A rational investor understands that she must forego short-term pleasure in exchange for long-term happiness. Short-term investments with long-term returns include exercise, eating right, saving and investing money, education, having children (for some), and eliminating destructive behaviors like excessively drinking alcohol and smoking. The challenge is both understanding the short-term and long-term consequences of our behaviors, and taking action (short-term pain) to achieve the desired long-term return. As a society, we need to work hard to plant seeds now (unhappiness) in order to reap the bountiful future harvest (happiness), like the ant.

  • Yahoo! Finance User - Thursday, April 10, 2008, 12:57PM ET  Report Abuse

    • Overall: 4/5

    Laura is spot-on in her assessment of a long commute as the road to misery. In any job search, I emphasize locations near home or near the local commuter rail line.

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