4 Truths About Money and Happiness

US News

People have probably been wondering whether or not money buys happiness since money was first used in the Middle East sometime around the 9th millennium B.C. But recent studies have come up with some answers to the age-old question that go beyond conjecture and personal opinion and have some basis in science and statistics. They also offer us a few suggestions about how our choices about money can make us happier.

1. What makes the middle class happy. Nobody knows exactly what happiness is, or has figured out why similar circumstances can make one person happy and another person discontented. But recent studies have described two basic kinds of happiness. One is called "emotional well being" and refers to a person's day-to-day experience, including how often a person laughs and feels stress, anger, joy and affection. These are the factors that make life pleasant on a daily basis. The evidence suggests that beyond a certain point, more money does not make a person happier. A 2010 study by Princeton University economists Daniel Kahneman and Angus Deaton allows that people in the lower economic groups are not as happy as people who make more money. But beyond a level of about $75,000 a year, more income does not produce more emotional well-being. The fact is, this kind of happiness has more to do with your health, social life and intimate relationships than it does with your paycheck or your portfolio.

2. A higher level of happiness. There is a second kind of happiness called "life evaluation", which refers to thoughts people have about their life when they think about it over a longer term, as they consider whether they've fulfilled their ambitions and dreams. Kahneman and Deaton found that life evaluation levels do increase with higher levels of income as well as higher levels of education. And a 2013 study from the University of Michigan and Brookings Institution that looked at 25 countries around the world confirmed that richer people are more likely to be happy than those earning less. There was "no evidence of a significant break in either the happiness-income relationship nor in the life satisfaction-income relationship, even at annual incomes up to half a million dollars," the authors concluded.

3. What makes retirees happy. A study from 2013, the Moss National Money and Happiness Study, revealed that the happiest retirees do not have a mortgage, or they have nearly paid it off. On average, 36 percent of happy retirees will have their mortgage paid-off within the next eight years, compared to only 24 percent of unhappy retirees. What's so important about your mortgage? According to Wes Moss, author of "You Can Retire Sooner Than You Think", your retirement income from Social Security, a pension and savings is static. When your mortgage is paid off, more income is available for what you really want to do. In addition, a study sponsored by Ally Bank showed that 84 percent of respondents acknowledged that saving for a rainy day makes them feel more in control of their lives, leading to an overall sense of well-being. And a majority said specifically that adding to their retirement account gave them a sense of accomplishment and made them feel proud of themselves. One other bonus for retirees: time spent commuting lands at the bottom of the happiness scale. So once you retire your E-Z Pass or commutation ticket, your happiness quotient increases.

4. How you can be happier. While our level of happiness depends on many factors, it is at least partly a result of our decisions about time and money. For one thing, if you are still working, you'll likely be happier if you spend more money to live in a place close to your workplace, rather than splurging on a McMansion that requires a longer commute. Also, we know that the consumer lifestyle does not necessarily bring happiness, while social connections do closely correlate to emotional well being. So it makes sense to spend more time and money on friends, rather than going to the mall for a shopping binge. Go take your spouse out to dinner, invite a friend for coffee or arrange a golf game or a tennis match.

Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement and other concerns of baby boomers who realize that somehow they have grown up.



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