Monday, September 12, 2016

"The More Cash People Have, the Happier They Are"

From the Wall Street Journal:
Happiness may not be about how much overall wealth you have, but how much cash you have on hand

Conventional wisdom says you should be investing as much of your excess money as you possibly can. That may be the best path to greater wealth. But it may not be the best path to happiness.

In a previous article we looked at a broad range of research about money and happiness. Some of the main conclusions: Experiences tend to provide more lasting happiness than material goods; giving money away makes people happier than spending it on themselves; and wealthier people do tend to be happier, but only up to a certain point.

More recent research has yielded surprising new insights. One study, for example, shows that when it comes to happiness, a bank balance may be more important than overall wealth. Meanwhile, a separate study suggests that buying material things can make you happier—but only if the things you buy fit your personality.

The Wall Street Journal spoke recently with Joe Gladstone, research associate at the University of Cambridge in the U.K. and co-author of both studies. Here are edited excerpts from that interview.
The right balance

WSJ: Why did you decide to look at the link between bank balances and happiness?
MR. GLADSTONE: I’ve been working with banks to answer some interesting questions about how and why people make certain financial decisions. A U.K. bank allowed us to survey thousands of its customers about their happiness and then match those responses to transaction data from their accounts.
We wanted to look at the fundamental question: To what extent can money lead to happiness? And does money tied up in a nonliquid form provide the same happiness as money that is available to spend?

WSJ: And what did you find?
MR. GLADSTONE: We find a very interesting effect: that the amount of money you have in your bank account right now is a better predictor of happiness than your aggregate wealth. Having more money in their bank account makes people feel more financially secure, which leads to an increase in happiness.
That makes sense for the poorest 50% in the study, but it’s surprising that it’s still the case for the richest 50%. Even for a very wealthy person who has lots of savings and investments, having more money in their checking account seems to increase their happiness.

It is just a correlational study, so we don’t study the reasons for this. But we can hypothesize that when money is tied up in a pension or investments, it feels more abstract and inaccessible. Going to the ATM and seeing a large balance available feels more important to people....MORE
HT: Marginal Revolution