December 31, 2008

Part 10: The Surprising Relationship Between Money and Happiness

[Part 10 of 12 in a series on How to Turn Your Financial Goals into Reality.]

Society perpetuates the idea that our only hope to be successful and happy in life is to become wealthy beyond our wildest dreams. The intense drive many people adopt to accumulate large quantities of money and goods may a have steep price tag attached—overwhelming stress and unhappiness.

While most people believe that having more income would make them happier, researchers at Princeton University found that the link between money and happiness is greatly exaggerated and mostly an illusion. Their extensive study, issued in June 2006, concludes the following:

"The belief that high income is associated with good mood is widespread but mostly illusory. People with above-average income…tend to be more tense, and do not spend more time in particularly enjoyable activities."

However, the researchers go on to say:

"Despite the weak relationship between income and…happiness, many people are highly motivated to increase their income.”

There remains a huge disconnect between perception and reality. The perception is “if I only had more money, I would be happier, less stressed, and in a better mood”. The reality is often a different story.

People surveyed defined their own terms for what made them happy. Those making $20,000 or less thought earning $100,000 or more would make them happier, while those who actually did earn $100,000 or more described a life of severe stress and time spent performing obligatory and less enjoyable tasks.

You can't have everything. Where would you put it?
Steven Wright

Across the income spectrum, most people told the researchers that they need more money than they currently have to be happy. This belief causes them to allocate additional time and resources to acquiring more income or possessions, which according to the study, increased stress levels without a noticeable increase in happiness. The quest for higher income also diverted people from seeking activities that would increase personal satisfaction and fulfillment—such as time devoted to spiritual awareness and socialization.

Get a Balanced Perspective on Money and Happiness

Obtaining both wealth and happiness is the ultimate goal for many people—but, as the study indicates, the two goals may be incompatible, depending on your definition of wealth.

The dictionary definition of wealth is: “great worldly possessions.” This compares well with how our society perceives the concept of wealth—lavishness, opulence, more money than could be spent in a lifetime.

However, the very same dictionary notes a Middle English reference for wealth:

Welthe: meaning “happiness” (with an overtone to good health)
Welthe is derived from the word weal: meaning “welfare” (a journey which fares well; or well-being)

You can see from these definitions that the end result of accumulating financial assets is the well-being of the individual. It is also clear that there is a difference between a “high net worth” individual and a wealthy individual. One term does not always equate to the other.

From strictly the material perspective, a wealthy person is one who has the financial assets needed to sustain a happy and healthy life. Anyone can achieve this. No one is excluded on the basis of education or occupation or even how much money one possesses.

The challenge for many people is learning how to balance the quest for wealth with the heart’s desire for those things money can’t buy. The more one seeks a balance of wealth and happiness, the more life will be rewarding and fulfilling.

Dale A. True, Registered Investment Adviser
True Financial Strategies, LLC
January 2009

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