Managing Your Money

When people are asked what kind of things they think will make them happy or have a successful life, many answer with things to do with money. A good job, a high salary, a nice house, a big retirement account. But are these the things that in fact lead to happiness?

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Yale psychology professor and Harvard graduate Laurie Santos delves into this issue through a course she created which has become the most popular course in Yale’s history. It’s available to everyone through Coursera, an online learning platform. It’s called The Science of Well-being. She explains the science behind why what we think will make us happy, won’t.  And what I appreciate about it, is that it’s grounded in scientifically based, measurable research.

Not surprisingly, when recent university grads are asked what is most important when looking for a job, over 60% want high compensation. However, when people are asked if they are satisfied with their compensation, most aren’t regardless of how much they’re making. Those making $30,000 feel they would be satisfied if they were making $50,000. So, we might assume that those making $100,000 would feel happy about their salary, but no, those making $100,000 aren’t satisfied either. They feel in order to be satisfied with their income, they would need to be making $250,000.

One statistic that blew my mind was the US lottery ticket spending.  Americans spend $70 billion annually on lottery tickets – this is more than people spend on books, music, movie tickets, sports teams, and video games combined. Why? Not because lottery tickets are fun and entertaining, but because they give hope of having lots of money.

Santos brings up an interesting survey of American freshmen that has been running since 1967 which asks, “what is most important in life?”  One of the questions asked of recent freshman was ‘how important it was to them to be very well-off financially’.  71 percent felt that this was an important goal, while only about half of them felt that it was important for them to develop a meaningful philosophy of life.  In contrast, when compared to the results of the survey from 1967, only about 40 percent of people then felt that it was really important to be very well-off financially, but over 85% of them felt it was important to develop a meaningful philosophy of life.  How times have changed!

So, this raises the question between ‘life satisfaction and income/money’. Does having more income increase life satisfaction?  Santos addresses some of the research that has been done on this topic and the results show that in poor nations there is actually a slight correlation between income and money – meaning that as income goes up and people can afford to meet their basic needs of clean water, food, shelter, basic healthcare, etc., their life satisfaction goes up slightly.  However, in wealthy nations like ours, there is barely any correlation between the two.  It seems that once you meet your basic needs, more money is not going to increase your happiness level by very much.

Going along with the idea that people think that more money will make them happier, many people also think that having awesome stuff will make them happier.  “If only I had _______, I would be so happy.” Whether it be a new pair of boots, a house on the water, or a fancy new car, people often buy stuff (or want stuff) thinking it will make them happier.  Even certain types of music, like hip hop, tell us that having awesome stuff will make us happier.  There’s actually a website that quantifies how many times hip hop songs reference particular cars, with Mercedes Benz hitting top spot with over 5000 references. They also mention good drinks, good clothes, and lots of other awesome stuff.  If people didn’t think this stuff would make them happier, these songs wouldn’t constantly be mentioning this stuff.  So, does having great stuff make us happier?

Santos points out that there are lots of metrics showing that stuff just doesn’t make us as happy as we think it’s going to, AND on top of that, research shows that being materialistic, wanting stuff, actually makes us less happy.  A survey done in 1976 and then again 20 years later with the same people, looked at their materialistic attitude and how wanting stuff affected their life satisfaction much later.  What they found is that the people who reported materialistic attitudes and wanting stuff had lower life satisfaction than non-materialists 2 decades later.

Many people feel that happiness is genetic and out of their control. Santos refers to Sonja Lyubomirsky’s really cool research on happiness which has identified that about 50% of our happiness is genetic – it’s the glass half-full vs glass half empty type of people.  Only 10% of our happiness is related to our life circumstances – if we lose our job, get sick, etc. And a surprising 40% of our happiness is under our control and based on our actions, intentions, and habits. So, we can actually work on being happy.  Santos cautions about a fallacy that some people will buy into which will limit their happiness.  It’s the idea of “all this science stuff might be true for everyone else, but not for me.  I am actually going to be happier if _____.”  Santos explains that this is a trick of the mind where we really believe our intuitions to be correct, and that sometimes our mind delivers stuff to us that is actually incorrect, but we have a hard time recognizing it.

What I found so encouraging about this course is that we have a huge amount of control over our happiness.  Science has proven it.  The problem is that people seem to be working towards the wrong kinds of things to achieve happiness.  My point in this article was to address specifically the relationship between money and happiness, or the lack thereof. That being said, saving up, planning and looking forward to life experiences can actually increase happiness. The focus then is on the experience, not the money. While most people think that my work in finance is all about money, it’s actually not – it’s about people.  I try to help people redefine what money means to them – the freedom to make choices, to move to a new life stage (i.e. retirement), to help others, etc.  While money won’t buy happiness, there are still lots of emotions surrounding it.  Part of my job is to help identify these emotions and set “money” related goals that aren’t actually about money.  What was clear from this course is that there are scientifically proven ways that we can become happier.  Check out the course through Coursera to learn what actions, intentions and habits will impact your happiness most.

Lynn MacNeil, F.PL. Vice President, Investment Advisor, is a Financial Planner with Richardson GMP Limited in Montreal, with over 22 years of experience working with retirees and pre-retirees. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at 514.981.5795 or Lynn.MacNeil@RichardsonGMP.com. Or visit our website at www.EphtimiosMacNeil.com.

The opinions expressed in this article are the opinions of Lynn MacNeil and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Richardson GMP Limited, Member Canadian Investor Protection Fund.