Stories about the relationship between money and happiness always fascinate me, and the latest research on the issue doesn’t disappoint.
As reported in the Wall Street Journal, one study found that it is not the level of aggregate wealth (investments, pensions, house) that one has that leads to happiness, but rather the amount of money in your bank account. Having more money in your bank account makes people feel more financially secure, which leads to an increase in happiness.
From a purely rational economic point, when someone has excess cash the right choice is to invest that money. But that is not taking into account human psychology; It isn’t just about maximizing your monetary benefit, but about maximizing your well-being.
This is similar to the results of a previous study I had written about that found that access to cash, not income, was the key to life satisfaction.
In the second study cited in the Journal, researchers found that when people spent money on things that matched their personality, it was strongly predictive of happiness.
In one experiment, the researchers took people who were highly introverted or highly extroverted and gave them money to spend either in a bar or in a bookshop. Then those people were asked for their levels of happiness at multiple points in the process.
The results showed that when the extroverted people spent money in the bookshop, it had no effect on their happiness, whereas the introverts became happier. And in the bar, the introverts actually became less happy.
This example hits close to home. I consider myself an introvert, and going to bookstores is one of my favorite things to do; i.e., it makes me happy. Going to a bar, which was something I enjoyed when I was much younger, doesn’t really do anything for me anymore.
So add these studies to the ever-growing list of research on the link between money and happiness. If you want to read a good summary of earlier research on this issue, here is a link.
And here is a story that looks at some studies that suggest how important money is to overall happiness and well-being.
In the meantime, remember these timeless words from Woody Allen:
Money is better than poverty, if only for financial reasons.