More Money, More Happiness?

More Money, More Happiness?

December 01, 2021

You probably have heard of the highly popularized 2010 Study that examined the link between wealth and happiness. Daniel Kahneman and Angus Deaton surveyed hundreds of thousands of people to rank how happy they were the day prior, and correlated their responses with income. They found that the two variables track very closely to each other, up until respondent incomes reached the $75,000 mark, after which the relationship fizzled.

Earlier this year, a researcher by the name of Matthew Killingsworth dug a little bit deeper into that fizzling upper tier of income. According to his study, happiness does indeed continue to rise with income levels, however the returns diminish once you surpass a certain threshold. Another way of thinking about this is that each dollar you earn doesn't lead to an equal increase in happiness, the dollars way at the top add a little less positive emotions to your life.

Regardless of where you fall on the income spectrum, researchers have found that how you spend your money can also impact your feelings of wellbeing. Here are a few pointers from Liz Dunn & Mike Norton's book, Happy Money: The Science of Happier Spending.

Buy Experiences, Not Things. Experiences are anticipated, felt, and remembered. They are also harder to compare than material things, and usually there is an inherent social component to them as well. For all these reasons, an experience will likely provide more positive feelings, for a longer period of time.

Save Now, Consume Later. Besides the fact that it is usually a more financially responsible decision to save up for big purchases rather than succumbing to immediate gratification, taking the time to save up or pre-paying for something you will have to wait for can also boost the anticipation, and thus, the overall happiness you experience from it.

Buy Time. Research suggests that people who spend money on time-saving services subsequently experience greater happiness in comparison to people who spent their money on things. Interestingly, this holds true across the income spectrum. In general, people who value time over money will be happier, especially if they find ways to spend that time doing something they deem productive or social.

As we approach the holiday season, we hope you use these tips to spend your money and time on things that maximize happiness for you and yours.

This information was summarized from an article found in Avantis Investors Monthly ETF Field Guide - October, 2021.