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.

How we look at Money

While vacationing in New York a couple months ago, I came across an interesting article in the New York Times titled “Net Worth, Self-Worth and How We Look at Money” by Paul Sullivan. I am fascinated by the psychology of money, so this article was of extreme interest. The article centered on a study by Dr. Brad Klontz a financial psychologist.

Dr. Klontz and Dr. Sonya Britt have published a study called “Money Beliefs and Financial Behaviours: Development of the "Klontz Money Script Inventory” . In the study, a sample of 422 individuals indicated their level of agreement on 72 money-related beliefs revealing four distinct money belief patterns.

Dr. Klontz’s calls these four distinct money belief patterns, “money scripts.” The scripts are intended to be used by psychologists to assess whether a client’s attitude may interfere with their ability to accomplish their financial goals.

The four scripts are discussed briefly below:

Money Avoidance

The study describes money avoiders as people who “believe that money is bad or that they do not deserve money. For the money avoider, money is often seen as a force that stirs up fear, anxiety, or disgust. People with money avoider scripts may be worried about abusing credit cards or over-drafting their checking account; they may self-sabotage their financial success, may avoid spending money on even reasonable or necessary purchases, or may unconsciously spend or give money away in an effort to have as little as possible in their control.”

The study found that people in the money avoidance category typically have low incomes and low net worth and this group would typically include people between the ages of 18 and 30.

It may be because the demographic group for this script is not my client demographic, but I have not seen this type of behaviour exhibited.

Money Worship

Dr. Klontz states that the most common belief among Americans is that “more money will make things better.” The study says “Individuals who subscribe to this notion believe that an increase in income and/or financial windfall would solve their problems. However, there is a paucity of empirical evidence to suggest that more money solves life problems.” The study goes on to say that “Furthermore, after an initial period of excitement, financial windfalls do not have a lasting positive impact on mood. For example, research has shown that while lottery winners feel good about winning, they are not significantly happier than non-winners, and even report experiencing less pleasure in ordinary activities than non-winners (Brickman, Coates, & Janoff-Bulman, 1978).”

The study cites various other studies that reflect minimal evidence suggesting there is a relationship between wealth and happiness, yet most people feel that their life problems would dissipate if they had more money.

The study suggests that money worshipers are typically young, single with lower levels of income and net worth with the tendency to not pay credit card debt in full each month.

In my experience, money worship is not only an issue with the young and single, but with all demographics. However, I must agree with the assertion that having money does not guarantee happiness, although in many cases, at least on the surface, it clearly does.

Money Status

The study says money is status scripts are “concerned with the association between self-worth and net-worth. These scripts can lock individuals into the competitive stance of acquiring more than those around them. Individuals who believe that money is status see a clear distinction between socio-economic classes.”

Personally, I most often observe money worship in higher income groups; as for many in this peer group, success and wealth is paramount.

Money Vigilance

Dr. Klontz has stated in the past that “For many people, money is a deep source of shame and secrecy, whether one has a lot or a little.” The study notes that money vigilance “appears to be linked to alertness, watchfulness, and concern about money, and the sense that one must be heedful of pending trouble or danger.”

I am not sure I can say I have run across this script, however, I have definitely met many people who are secretive about their wealth to ensure they are not viewed differently by their friends and family. Maybe this is partly shame; however, I am not qualified to say.

It is very interesting to note that Dr. Klontz in the New York Times article said “the four money scripts illustrate problems that have less to do with money than with what money represents.”

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.