My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Wednesday, February 22, 2012

Does Money bring Happiness?

I find the psychological aspects of money fascinating and in July, I wrote a blog called How we look at Money. Today, I want to discuss a post on the Psyblog (written by Jeremy Dean, a researcher at University College of London working towards his PhD) called The 3 Reasons Money Brings Satisfaction But Not Happiness.

Jeremy puts forth the following three reasons why money doesn't make us happy:

It's relative income that's important


Jeremy says money is relative. He says “we don't mind so much about our actual level of income, so long as we're earning more than other people around us. Unfortunately as we earn more money we're likely to be surrounded by richer people so we often end up failing to take advantage of the positive comparison.”

I would be interested in knowing if there is a correlation between increasing income and the importance of relative income; or is relative income as an important measure at lower income levels as it is at higher income levels? One would think meeting basic needs would be far more important the lower your income level, but maybe not. As for those with a higher income, I think we all know someone who needs to earn more than their friends and the people they grew up with, but as they earn more, they essentially social climb into another strata and, as Jeremy says, become surrounded by richer people, requiring them to climb another social strata in a never-ending loop.

Material goods don't make us happy


Jeremy says “acquiring things like houses and cars only have a transient effect on happiness.” Jeremy even states that materialism makes us less happy.

I think we can all somewhat relate to this comment. We often strive for a material item and sometimes, after achieving it, there is almost a letdown as the journey was more exciting than reaching the mountaintop. However, let’s say you love to jet-ski; the acquisition of the sea-doo would seem to have a lasting effect on happiness, so I am not sure I am 100% in agreement on this one.

People don't shift to enjoyable activities when they are rich


Jeremy says “people who earn more money don't spend their time enjoying themselves, they spend their time at work, in activities likely to cause them more stress and tension….In fact, to earn the money, they have to spend more time at work, and commuting to and from work.”

Although true in some cases, I certainly observe many people golfing 3-4 times a week or hanging out at their cottage in the summer enjoying themselves and their financial wealth.

Finally, Jeremy in his blog notes that Nobel-prize winning psychologist Daniel Kahneman says “the idea that the reason people continue to think money makes them happier is that chasing it leads to conventional achievements. Conventional achievements include things like getting that coveted promotion or being able to afford that big house - in other words things that say loud and clear: here I am and this is what I can do.”

Jeremy concludes that “in fact, people with more money and status are just more satisfied with their lives, not happier”.

Jeremy asks an interesting question in his blog posting and I will conclude this posting with the same question, “before you scoff at this think about whether you'd rather be satisfied or happy?”

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

8 comments:

  1. Good Morning. Just a note to say thanks for your blog. Functioning at a kindergarten level as far as accounting practices, I rarely (in fact, never) have much to contribute to the discussion but I want you to know how much I (and I'm certain many other lurkers) appreciate the time and care you take to create this site. Have a good one! Pursuit99

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  2. Pursuit 99

    Thank you very much for the kind words. I hope I have written some of my blogs in language that have allowed you to progress from kindergarten to grade 6 in financial and income tax management :)

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  3. Yes there was a study done on this topic. Basically after about 75,000$ the effects of money begin to level off. Like most things, the marginal value of money probably goes down exponentially with the more you have.

    https://www.npr.org/blogs/money/2010/09/07/129703291/new-study-high-incomes-don-t-bring-you-happiness

    Generally though, people who are earning those 6 or 7 figure incomes are in it primarily for the challenge and competition; money, imperfect as it is, is the most widely accepted method we have of gauging accomplishment.

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  4. Anon, thx for the link. Interesting study.

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  5. I think knowing who you really are and not trying to keep up with the Joneses regardless of tax bracket is your insurance policy for happiness. Pursuing worthy goals, living within your means and treating those around you with generosity (not monetarily speaking) leads to happiness. At least, for me.

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  6. Jerry, well said, I have nothing more to add

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  7. I remember a good saying "Money doesn't buy happiness, but you can park your yacht next to it." I've also been fond of saying that it's better to be rich and miserable than poor and miserable because the view is nicer.

    I am not rich, but I do have a degree in psychology, and I think this is a study only a professor could come up with to justify their own situation. Just what the heck does "happiness" mean anyways?

    I'm satisfied, for the most part, with my life, but I don't know that I would say I'm happy most of the time. Happiness, to me, is a fleeting sensation, but satisfaction is what I have knowing that I'm not stressed financially, and that I can do what I like.

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  8. Don, great comments. Also great question about what does happiness mean anyways? I not only had that question, but to be honest, I was not really sure I could distinguish as clearly as you the difference between satisfaction and happiness. I am ok with Jeremy justifying his own situation if that is the case, since it provided an interesting topic for discussion and elicited some interesting comments, like yours. Hows that for self-interest creating self-satisfaction, but not happiness :)

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