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. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, June 22, 2015

How Much Money Does it Take to Make You Happy?

Have you ever wondered if money brings you happiness? You are not alone in this thought. I find this topic fascinating and as such, I have written several blog posts on the relationship between money and happiness/success, including:

Last summer I was teamed up with a high-end money manager at a golf tournament. During the round my interest was piqued when he provided me with his thoughts and observations on wealth as it related to happiness and unhappiness.

His general observation was that “Money makes happy people happier and unhappy people even unhappier” (keep in mind, he deals with the wealthiest segment of the population).

It was his contention that people who are happy to start with, have the ability to receive pleasure through spending, sharing and giving. Happy people enjoy the material things they can purchase. They also can be generous to others and receive satisfaction seeing the benefits of their generosity. Overall, they receive pleasure observing the betterment of themselves, family, friends and the community.

Conversely, he opined that unhappy people, considered money to bring added stress and a burden that manifests itself into further unhappiness. He felt the cause of this unhappiness resulted from the worry that people judged them and there was often paranoia that people wanted access to their money. For the most part, he had observed that these people don’t get real pleasure from their money and don’t enjoy spending, giving and sharing.

While I appreciated his insights, I was concerned about the applicability of his findings given the wealth of the people in his sample and his limited sample size. This caused me to look for studies with more of a representation of the average population to determine if “happy people” were able to reach a certain level of happiness due to their financial success. This led me to a 2010 Princeton University Woodrow Wilson School study by Angus Deaton and Daniel Kahnemen.

Princeton Study

Deaton and Kahnemen analyzed the responses of more than 450,000 Americans to the Gallup-Healthways Well-Being Index. They found that “emotional well-being” (essentially your day to day contentment based on the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one’s life pleasant or unpleasant) and “life evaluation” (the thoughts that people have when they think about their life) are not necessarily correlated.

The authors found emotional well-being increases with income, but does not progress past $75,000 (or $90,000 Cdn :). However, more money boosts how you assess your life. As Mr. Deaton told Randolph Schmid of the Associated Press "Giving people more income beyond 75K is not going to do much for their daily mood ... but it is going to make them feel they have a better life."

Personally I wonder how all this translates regionally. Am I as happy with $75k if I live in Flin Flon as I am with $75,000 in Toronto? How about if all my friends make $300,000,does my life evaluation become so negative it impacts my happiness?

Anyways, if you believe in the findings of the Princeton study, the money manager’s view is essentially corroborated and at $75k, you’re bopping around the house singing “Happy” just like Pharrell Williams.

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  1. When I saw the headline, I thought you were going to say that most people estimate they need just about twice what they have now. Or that they need just a bit more than their neighbours / peers to be happy.

    1. Hey CI

      My aim it to keep you guessing :) Hope all is well.

  2. Money plays a significant role with regard to happiness, with income, sources of income, current assets, age, responsibilities, friends, family, and location being major variables. I make about $85,000 in Toronto, separated, 47 years old, I rent, support two teenagers, no inheritances in my future, most friends I know own Toronto homes and will inherit significant wealth, many have good government pension benefits, so I think in my case financial stress negatively impacts my life. Twenty years ago it was quite the reverse. Twenty years from now things might be more balanced I hope with proper planning and a bit of luck. If financial stress was not a factor in my life today, I'd be far more content and at peace with myself. Earning $85,000 working is more stressful then earning equivalent income through passive investment income. So, bottom line, money plays a significant role when it comes to measuring happiness. Everyone needs some money for financial peace of mind. Enough money is subjective and each person is in a different situation then another. I think the biggest shakeup for many people's financial happiness in the Toronto area has been the surge in real estate prices. If you owned a house in Toronto last 10-15 years, you are on average probably feeling more financially happier then those Toronto residents who were not homeowners during that same period.

    1. veryedumacated:

      Love your handle by the way.

      Very well said; as you note, Toronto houses are going to backstop many a retirement and if you were forced out of the housing market due to divorce or never got in, it truly is an uphill battle..

  3. I think the Toronto housing market bottom out in 1995. That is a while ago. I wonder what the future holds for Toronto real estate prices 5 years and 10 years from now.

  4. Interesting perspective from the financial planner.

    I have two thoughts on money vs. happiness. First, I'm happier if I have control of our income and spending. Leaving it uncontrolled is stressful. Reviewing income and spending (budgeting) isn't stressful and boring, it's empowring and stress-reducing because I KNOW what's going on.

    In terms of volume of money however, a (wealthy) friend of mine told me once that i's the second hundred thousand that makes the difference. The first hundred thousand is spent on living, the second hundred thousand gets in to discretionary income- the money you get to have real fun with. I guess that's the money he bought an Austin Martin with :).

    1. Thx Glenn, I guess your friend would dispute the $75k US happiness findings

    2. hopefully it was an Aston Martin :) - and he would need another 100K to run the thing - a little vain is he? in the "look at my toys" kinda way

  5. There was also the study showing that relative income is a large factor.
    [first Google link was this, and it looks like the study:]

    Both absolute well-being and relative position seem to matter to people. Our evidence
    indicates that positional concerns are extremely important. In our survey, half of the respondents said they would prefer a world in which they have 50 percent less real
    income, so long as they have high relative income.
    a policy that increased their absolute income but lowered their relative income did not make them feel better off.

    1. Thx aB

      Empirically, I dont find those results very surprising.

  6. I'm not surprised at these findings, aB.

  7. I live in London, Ontario where cost of living is way below GTA. My income is about $75K and my spouse makes about half that. We live in a great neighbourhood, have a nice house with a huge back yard, my commute to work is about 15 mins and I still end up saving about $30K each year (my spouse saves from her income too). You could say I'm happy at $75K, but it really depends on your spending habits and where you live.

    1. Thx Anon,

      I think you are right on. Spending habits (often influenced by friends and family) and where you live have a large impact on money and happiness.