Can Money Make You Happy?

Sep 20 2016 by Vogue Financial

An age old question that has been debated ad nausea. New research suggests that in fact money can make you happy but perhaps not in the way you are thinking.

It would seem that investing your earnings is the correct way to achieve long term wealth goals but recent studies point to numbers that suggests that wealth may not be the only indicator when it comes to happiness, it may well be how you access it, and how you spend it.

Joe Gladstone, research associate at the University of Cambridge in the U.K. and co-author of two recent studies has brought to light some characteristics of how you interact with your wealth that may be more important than your overall wealth.

In his recent study he looked at how your actual bank balance affects your overall happiness as opposed to your actual wealth. Does the opportunity of having access to cash in the bank increase your happiness regardless of what you overall wealth is? The result was quite surprising.

In a survey of 585 UK bank customers the findings concluded that liquid wealth is indirectly associated with life satisfaction and happiness.

Regardless of total wealth the access to liquid cash still provided greater life satisfaction. They hypothesised that money tied up in investments and non liquid assets was more abstract , whereas access to immediate cash from an ATM provided a feeling of fundamental security. This held true across the poorest and the richest of the account holders.

This is not to say that we should keep all our funds immediately accessible. The level of satisfaction is diminishing in its returns but by keeping a level of cash available you may well feel more satisfied than if you had all your cash tied up.

In another study Joe and his colleagues addressed whether money can buy you happiness when you are splashing it about. Working with a UK bank they analysed credit card spending and matched them against the results of happiness and personality surveys with again surprising results.

Common sense would tell you that a person would buy things that fits their personality and that the mere act of spending and obtaining an object or an experience would make you happier. This is not the case.

You would assume that when asked what will make them happy if they spend money people will tell you, but in fact it seems they will give what is known as a normative response, that is what they think should make them happy. In their study they show that what fits with socially desirable behaviour may not in fact make a person happy, but their response may still equate to it.

They use the example that an outgoing person given a sum of money to spend in a bar will delight in all the social interaction, but when given funds to purchase a book at a bookstore their response would be very different.  Similarly, an introvert will not enjoy a bar, but will love the hours spent browsing a bookstore

What the study found was that your spending has to match your personality in order for it to lift your level of satisfaction or happiness.

By assigning personality scores to objects they were able to determine what actually made people happy when spending.

In essence the two studies provide data that tells us people feel more comfortable and are generally happier if they have access to liquid cash and have a higher level of happiness when spending on things that connect directly with their personality type.

This may provide some level of reflection to some of your finances and investments. We are not suggesting that you should run out and turn everything to cash but the results would seem to say that having an available buffer of cash (most good financial advisers will tell you to do so) could significantly add to your happiness and state of mind.

When you do spend money on discretionary items make sure they are things that are aligned with your personality and will add value to you, rather than what society may dictate as things that should make you happy.

It would seem that money can buy you happiness, but only in specific circumstances.

 

Ask yourself these questions.

  • How does this fit in with your current financial state?
  • Are you happy with your levels of liquid cash?
  • Do you make purchases because you think they should make you happy rather than things that do make you happy?
  • Are there any easy changes you can make that, according to the study may raise your levels of happiness?

 

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