Money Matters: Linking money and happiness

In this, the health edition of Live Well, I've been wondering about money and happiness. I've seen a lot of studies that report something similar to the idea that money isn't all that huge a part of life's happiness. For instance, studies of twins can provide some valuable insights. In one such study, researchers David Likken and Auke Tellegen found that only 2 percent of happiness among people can be attributed to differences in income.

Sociologists Glenn Firebaugh and Laura Tach examined 30 years of survey data on well-being: They sorted some 20,000 working-age Americans by income and then by whether they thought of themselves as "very," "pretty" or "not too" happy. The data also covered age, health, marital status, education, race, work status and gender, so the researchers were able to compare individuals with otherwise similar profiles.

They concluded that money makes people happiest when they have more of it than those in their bracket. They proved that money buys happiness - as long as it puts people ahead of their peers. But they also found something else - something that helps put increasing our income in perspective. Money is not as important as health or marriage.

I've read that one of the most consistent findings of the happiness literature is that having a strong social network is an excellent predictor of happiness. Researchers Elizabeth Dunn and Michael Norton surveyed 632 Americans on their general happiness, along with what they spent their money on. They found that higher "prosocial spending" -- gifts for others and donations to charity -- was indeed correlated with higher self-reported happiness. They followed this up with a more detailed look at 16 workers before and after they received a profit-sharing bonus from their company. They found that the only factor that reliably predicted which workers would be happy six to eight weeks after the bonus was their prosocial spending -- the more money people spent on charity and gifts for others, the happier they were.

The researchers wondered whether the happiness was caused by giving money away or if charitable people simply happier to start with. To show a causative link, they gave test subjects a small windfall of $5 to $20. Some of the subjects were told to spend it on a bill, an expense, or a gift for themselves. The others were told to buy a gift for someone else or make a charitable donation. Afterward, the second group -- the ones who had given the money away -- reported being significantly happier than those who had spent the money on their own needs. The lesson of their study, says Dunn, is clear. Money makes you most happy if you don't spend it on yourself.

"By that I do not mean give all your money away and live in a shack. I just mean think about increasing it slightly. Just reallocating as little as $5 on a given day can make a difference in happiness," she said in an interview.

The short story so far seems to be that we should strive first to cover our needs, and then think a bit about what else we spend money on. I've worked with enough people who have filed bankruptcy to know that having enough money to comfortably feed, clothe and house themselves given quite unpredictable times can mean building up and protecting a large pool of financial resources.

Lack of money is very much a health issue since it affects our quality of life. The stress caused by disagreements at home over how to spend money can quickly deteriorate our happiness. I remember that Parade magazine's 2008 survey on marriage found that money was the leading cause of marital fights. I've also heard that only 23 percent of couples say they work together to plan their financial lives. Couples tend to give wildly differing answers on big money questions, such as when they expect to retire, about 30 percent of the time.

To improve your health and your happiness, build some shared goals with your spouse, get control of your expenses, and regularly think (and talk) about finances. Things like these can immediately increase the happiness in your life by reducing the stress over money.

As you go, don't forget the other philosophical wisdom: The journey is more important than the destination. Our happiness comes from striving for improvements and from the sense of achievement gained by overcoming the challenges we face along the way.