December 13, 2021

A Refreshing Perspective on Money and Happiness

By Alex Kluesner

Eighteenth-century Swiss philosopher Jean-Jacques Rousseau said, “The money you have gives you freedom; the money you pursue enslaves you.” He clearly believed that money alone can’t guarantee happiness, and many other philosophers, business moguls, and philanthropists both before and after his time would agree. After all, it’s likely very few of us in the end would take more of the stuff that money can buy in exchange for less of the things that it can’t. And this understanding is at the heart of the approach we take to designing your financial life plan.

Sure, we all know that wealth provides a certain level of wellbeing. It’s also true that, after a point, the happiness money offers can be more fleeting. This concept has spurred a welter of socio-psychological and financial studies to determine whether an increase in wealth – beyond satisfying your essential needs – will result in a similar increase in happiness.

For instance, a 2010 study conducted by Nobel Prize-winning economists Daniel Kahneman and Angus Deaton claimed that the relationship between annual income and happiness was highly correlated up to $75,000 a year but then lost significance above that threshold.1 A more recent addition to the literature, a 2021 study from Matthew Killingsworth, shows wealth does continue providing more happiness above that $75,000 income level – but at a diminishing rate.2 This research doesn’t provide a hard-and-fast rule for every situation, in part because you may need more or less wealth than someone else to feel content in the lifestyle right for you. But the takeaway for us is that there’s an inflection point. The psychological cost of generating additional wealth may come to outweigh any temporary happiness gained from it.

The question remains – what should you do with the money you do have? The beauty of money is that it can buy many things, and while you can’t order happiness off Amazon (some might argue that point), it can buy flexibility. When spent wisely, a certain level of wealth can afford you the opportunity to do almost whatever you want, whenever you want, and with whoever you’d like. It can buy you more time with friends and family. It can allow you to quit your job tomorrow and pursue a truer passion. It gives you freedom to do the things that make you happiest. And you don’t need an immeasurable amount of wealth to do these things as long as you prioritize what truly matters to you, such as charitable giving, family vacations, or planning for the next generation. Following this framework could make you feel wealthier than any amount of money ever could.

Your long-term financial plan is one mechanism to help translate your money into happiness. Your advisory team works diligently with this idea in mind when helping you select an investment portfolio and implement planning strategies to meet your life goals and desired milestones. So, instead of being focused solely on accumulating wealth or chasing higher investment returns, be mindful of how your financial life plan can deliver freedom, flexibility, and even greater happiness.

1. Daniel Kahneman and Angus Deaton, “High income improves evaluation of life but not emotional well-being,” Proceedings of the National Academy of Sciences 107, no. 38 (September 2010): 16489-16493.

2. Matthew A. Killingsworth, “Experienced well-being rises with income, even above $75,000 per year,” Proceedings of the National Academy of Sciences 118, no. 4 (January 2021): e2016976118.

The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®. This article is for informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, confirmed the accuracy, or determined the adequacy of this article.

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© 2021 Buckingham Strategic Wealth®

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