Teaching The Relationship Between Money and Happiness
“Money
Get away
You get a good job with more pay and you’re okay
Money
It’s a gas
Grab that cash with both hands and make a stash”
-Pink Floyd
At my school this was the last week of classes for the class of 2022. What does the future hold and what role will money play?
Many students have thought deliberately and carefully about their futures. Many are off to college, enlisting in the military, planning on working, and taking gap years.
During casual conversation a simplified formula for success is usually expressed: ‘Graduate high school, get a good paying job, everything else will just fall into place.’ For some, the simplicity of this formula might be true. For others, not so much.
One of the more impactful lessons I present is the exploration of the relationship between money and happiness. It is also where there is a lot of healthy skepticism, pushback, and constructive disagreement.
In my classes I ask older teens to estimate the amount of money they need to earn by a certain age in order to be happy. I ask them to consider relationship and family status, cost of living adjustments, where they live and what they own, etc.
Then I ask them to answer the following: what is it that money is buying that is providing them happiness or satisfaction with life? What do they envision?
That is where the inquiry begins.
What is your relationship with money? What is the relationship between money and happiness?
As the Notorious B.I.G lamented, “It's like the more money we come across; The more problems we see.” Tragically, for Biggie Smalls this was true.
Conventional wisdom however, suggests that money does lead to less problems, and greater happiness.
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Is a good life a life filled with goods?
Research suggests that about 5 to 15 percent of the population is addicted to shopping. About 3.5% of high school aged adolescents have a shopping addiction.
The gross domestic product of the United States totaled $20 trillion in 2020. And 70% of GDP or the total number of goods and services produced in a year, was generated by consumer spending. Unfortunately, research indicates that consumerism and materialism are strong predictors of unhappiness.
Daniel Pink, the author of Drive: The Surprising Truth of What Motivates Us stated that “many of the practices associated with money counterintuitively give us less of what we want and more of what we don’t want.”
Dr. Rick Hanson has said, “I think it goes to the bottom line fact that you can never get enough of what you don’t really want. In other words, deep down, we don’t really want more goodies, more toys, more cars; we want what they will bring us. We want to feel whole, we want to feel content.”
Are they right? Consider these statistics.
•Average family size in the United States is decreasing whereas square footage of new construction of homes is increasing. And the average size of the American home has nearly tripled in size over the past 50 years.
•According to the LA Times, there are 300,000 items in the average American home.
•1 out of every 10 Americans rent offsite storage—the fastest growing segment of the commercial real estate industry over the past four decades.
•According to the U.S. Department of Energy, 25% of people with two-car garages don’t have room to park cars inside them and 32% only have room for one vehicle.
•The United States has upward of 50,000 storage facilities, more than five times the number of Starbucks. Currently, there is 7.3 square feet of self storage space for every man, woman and child in the nation.
•And, personal storage generates more than $24 billion in revenue each year.
•British research found that the average 10-year-old owns 238 toys but plays with just 12 daily.
•3.1% of the world’s children live in America, but they own 40% of the toys consumed globally
•The average American throws away 65 pounds of clothing per year. According to McKinsey & Company, a prominent research think tank, cited for example, Californians in 2020 bought and wore 510,000 to 530,000 tons of clothing. Some 500,000 of those tons will end up in landfills and will cover an area about 3.5 times the size of L.A. More than 97% of the textiles used in this clothing are new materials, and less than 1% of the materials worn today will resurface in clothing manufactured tomorrow.
•Some reports indicate we consume twice as many material goods today as we did 50 years ago.
•Over the course of our lifetime, we will spend a total of 3,680 hours or 153 days searching for misplaced items.The research found we lose up to nine items every day—or 198,743 in a lifetime. Phones, keys, sunglasses, and paperwork top the list costing us 10 minutes a day
•11.6 million children, 16% of all kids nationwide were living in poverty in 2020. This total has increased by more than one million children since 2019. Poverty rates are disproportionately higher for children of color.
•When one compares themselves today to others around the world at the approximate U.S. median household we are often surprised. The median household annual income in 2020 was $67, 251. That means that 50% of U.S. households earned above and below $67, 251.
•If you earned an income of $59,000, you were in the 91st percentile globally for per person income. In other terms an income of $32,400 per year would put one in the richest 1% or the top 1% of income earners in the world.
•For most of us, in relative terms, we have hit the economic jackpot based on where and when we have been born. According to estimates from the World Bank in 2015, 10 percent of the world’s population (roughly) 736 million people lived on less than US$1.90 a day.
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Do nations that experience a long term growth in person income also experience long term growth in happiness?
Richard Easterlin in 1974 coined the Easterlin Paradox. He found that happiness seems to rise with income but to a point, but not beyond it.
Meaning income matters to happiness, but after a certain point more money doesn’t create more happiness. Easterlin studied incomes of people in the U.S. and the U.K. during the 1950s.
The Easterlin Paradox has shown that since the 1950s average household income and purchasing power has been steadily increasing, while the percentage of people self-reporting happiness has remained relatively constant.
Thus the paradox: Happiness levels have not increased with increased income.
If we can buy more, and have more stuff, why haven’t happiness levels stayed consistent with rising incomes?
He concluded once money buys you out of the depravity of poverty and one’s basic needs are met, there are no long term benefits with acquiring more income. Every extra dollar earned significantly helps poorer individuals, not rich ones.
Easterlin believed that one reason for this was that relative levels of money have much more influence on our psychological wellbeing than absolute levels.
Meaning, it isn’t how much we earn per se that makes us happier, but the way money affects our sense of wellbeing.
You can be rich in the absolute sense, in dollars and zeroes, but poor in the other areas of your life that matter.
The money-happiness connection becomes dependent upon comparing ourselves to others. Much of our attitudes towards money is based on competitive psychological processing. People feel the need to do better than others.
It is natural and common to determine how well we are doing by comparing ourselves to others. We use others as a reference point.
Perhaps this is due to ‘status anxiety,’ a term coined by British philosopher and author Allain de Botton. Status anxiety can be defined as the constant tension or fear of being perceived as "unsuccessful" by the society in materialistic terms.
Botton described how modern day society affects where our self worth and standing. Our self-worth, he believes, has become closely tied to what we earn and how we spend.
Peter Kuhn and colleagues examined the Postcode Lottery winners in the Netherlands. The Dutch randomly select a postal code and award cash and a new BMW to its winners.
What Kuhn and his colleagues attempted to measure was not only the effects of winning the lottery on the winners but also the effects on their neighbors.
The researchers wanted to see whether neighbors of the lottery winners would be induced to ‘keep up with the Joneses’-that is, purchase a new car to keep pace with their neighbor.
What they found is that the Dutch were twice as likely to buy a new car themselves if they lived next to someone with a new car in the garage.
In a different study, a majority of respondents were happier to earn less knowing that they were earning more than another. 62% of college students reported feeling happier landing a first job bringing $33,000 per year, if they knew their peers had got jobs earning them $30,000.
This was in contrast to choosing an option where they had got a $35,000 job (more income) while knowing others earned $38,000. Meaning 62% of college students would rather earn less, knowing they were earning more than their colleagues.
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Can you quantify how much money is needed to be happy?
In a now ubiquitous study done by Nobel Prize winners in economics, Angus Deaton and Daniel Kahneman, they found a link between happiness and income but only up to $75,000.
After basic needs are met, more income does not lead to an increase in emotional wellbeing.
Deaton and Kahneman polled 450,000 Americans between 2008-09 looking at how income predicted positive affect, not feeling sad or worried and feeling stress free. Below $75,000, many factors become gradually worse, at least on average.
They inferred that beyond about $75,000 a year, there is no improvement in any of the three measures of emotional well-being. The big conclusion: More money does not necessarily mean more happiness, but less money results in greater emotional pain.
What money bought people was reducing the stressors and deprivations that come with poverty.
The $75,000 illustrated a range, with variability based on where you live. It also isn’t a hard limit. Where you begin matters. So does the cost of living. Earning $45,000 a year in one country might be enough to have your basic needs met.
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If money buys happiness, what does it buy?
As entrepreneur and investor Naval Ravikant has noted, “You’re spending time to save money when you should be spending money to save time.”
Money doesn’t directly buy happiness but something else. Money seems to buy liberation.
Matthew Killingsworth of the University of Pennsylvania has studied data from more than 30,000 adults.
As you can see in his data, he found that happiness does indeed increase with income, well past the $75,000 threshold. The data seemed to confirm that money does in fact buy happiness.
However, Dr. Killingsworth found that the effects of money level off. There is a difference in life satisfaction increasing earnings from $30,000 to $60,000 a year. But the difference between earning $100,000 to $200,000 isn’t proportional to that.
The biggest conclusion from Killingsworth’s data was how money increased wellbeing.
People who worked longer hours for more money were less happy. They felt time starved. People who equated money with success were also less happy.
Money bought happiness when it provided a sense of control or freedom to one’s life. Income alone is only a moderate determinant of happiness.
The study found that people’s sense of control over their lives accounted for a whopping 74% of the connection between income and experienced wellbeing.
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Research data does support that higher national incomes go together with higher average life satisfaction. People in richer countries tend to report higher life satisfaction than people in poorer countries.
However, there are many variables and factors that provide a more nuanced understanding. Greater trust, community support, low inequality, standard of living, hope for the future, are all factors. And yes, there are people in Senegal and Costa Rica who report being just as happy, if not happier, than many Americans.
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Is money a dependable path to happiness?
In Oliver Stone’s 1987 film Wall Street, the famed yet disgraced, deceitful and brutal character Gordon Gekko uttered the famous “Greed is good” speech.
The idea for the speech comes from a paraphrased 1985 commencement speech for the School of Business Administration at the University of California Berkeley given by Ivan Boesky.
The character of Gekko was based on the amalgamation of criminal and disgraced Wall Street traders Ivan Boesky, Michael Milkin, and Carl Ichan. Over the years many people have come to idolize Gordon Gekko.
With time Gekko has become mythologized and elevated from the role of villain to that of hero.
It begs the question why might people think that a character that is an aggressive, shallow, money seeker is actually a role model?
In the film The Wolf of Wall Street Leo Dicaprio plays Jordan Belfort, who manipulated family and friends to help scam people of $100 million dollars throughout the 1990s to finance a hedonistic paradise, full of drugs, prostitutes, and reckless behavior that endangered others.
He modeled himself after the character Gordon Gekko. Belfort went to jail.
Money may not be a dependable path to happiness. Part of the reason is that the things we buy often do not satisfy us for very long (or not at all).
This is explained by what psychologists call the hedonic treadmill and adaptation. Hedonic, meaning hedonism, or the pursuit of pleasurable things.
Every time we buy something we get a little positive boost in mood, elevated positive emotions, dopamine reward, but we quickly adapt to that. When we adapt, we return to baseline levels of wellbeing (happiness).
Perhaps it was a sweater, new song, that no longer seems to get you jazzed up. The emotional high or positive boost is no longer felt when you listen to the song or wear the sweater.
You feel the same you felt prior to buying the sweater. The sweater gets donated and you find new music. That is adaptation and the hedonic treadmill.
It is like being on a happiness and consumption treadmill. You tend to purchase more, perhaps working more, but your happiness levels remain in place.
We are hardwired in a sense, to want more, and to never be satisfied with what we have.
It takes quite a bit of effort in today’s world to find contentment as it pertains to money. The riches you accumulate typically only raise your expectations.
Always wanting more, we run like hamsters on a wheel, accumulating more stuff to only adapt to it.
Perhaps Dr. Rick Hanson was accurate when he said, “I think it goes to the bottom line fact that you can never get enough of what you don’t really want. In other words, deep down, we don’t really want more goodies, more toys, more cars; we want what they will bring us. We want to feel whole, we want to feel content.”
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What are teen and young adult attitudes towards money?
According to UCLA’s American college Freshman Survey in the Higher Education Research Institute reports that 70% of the average freshman in college answers the question, ‘what’s important in life’ with being 'very well-off financially.’
It might appear, depending on other measurements of millennial attitudes and younger generations that money isn’t a singularly important motivation.
Time and experiences seem to be viewed as being more important than making money and obtaining possessions.
Researchers Ashley Whillans and Elizabeth Dunn found that students who prioritized time were happier than those who prioritized money. Their research revealed that those students who valued time were happier and more satisfied with their lives and careers one to two years after graduation.
Their evidence suggests that valuing time puts people on a path toward greater job satisfaction and well-being. Part of the reason is because we pursue activities we find enjoyable with our leisure time.
Most people focus too much on salary, status, and prestige. People don’t focus enough on enjoyment.
In Whillans and Dunn’s study, students wanted jobs that were personally meaningful and fulfilling. This helps to explain why they reported greater happiness later.
Happiness wasn’t attained because they worked less. Rather, it derived from enjoying the work they did.
Many philosophers recognized the futility of keeping up with the Joneses. Seneca warned in his Moral and Political Essays, “If more has been bestowed on somebody else, we should enjoy what is ours without making comparisons. No one will be happy if tormented by the thought of someone else who is happier.”
There are different ways to compete in this rat race of social comparison and mindless consumerism. The easiest way is to change the ways we think about money and how it can make us happy.
Roman Krznaric writes in his book How We Should Live that there are ways to shift our beliefs about the role money should play in our lives. Simplifying our lives isn’t all that difficult. Krznaric suggests to not “…abandon luxury, but simply discover it in new places.”
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Lessons that can be applied in the classroom or in our lives
1-Buy experiences not things. Use money as a means to connect with others, not separate yourself from others. Experiences are more difficult to adapt to than the things we buy. Also they are less prone to toxic social comparison.
Just because you spent less on an experience than another doesn’t seem to matter as much.
In a study done by Howell and Hill titled “The mediators of experiential purchases: Determining the impact of psychological needs satisfaction and social comparison” they studied whether experiential purchases compared to materialistic purchases were more likely to boost wellbeing and whether the purchases made other people or just yourself happy?
What their research concluded was that materialistic pursuits, specifically materialistic purchases proved detrimental to an overall sense of wellbeing.
In fact, research strongly suggests, over 35 years of investigation, that experiences more than possessions correlate with a higher sense of wellbeing.
They also reported that “participants indicated that experiential purchases represented money better spent, brought more happiness to themselves and more happiness to others.”
2-Where you begin, socioeconomically matters. As Dan Gilbert has stated, “if you don’t think money buys happiness go talk to someone who lives under a bridge. If you think money buys happiness go talk to Bill Gates.”
There is a danger of elitism. It is easy to reject the trappings of wealth and monetization once you have attained it.
Data from the Pew Research Center suggest that people are generally happier in countries that have experienced stronger economic growth over many years. People feel more satisfied with their lives because they believe they are making progress with their lives.
In countries where income remains stagnant or low or large portions of the population lack access to water, electricity and adequate health-care people, life satisfaction remains low.
3-Think about what you are not thinking about. What are your needs? How can money help to attain them? In economics, an opportunity cost presents itself with every decision.
When we choose one thing, there is loss of value or benefit by engaging in that activity relative to engaging in an alternative activity that might offer a higher return or value.
Thoreau encouraged us to think about the opportunity costs associated with consumption. Thoreau wrote, ‘The cost of a thing is the amount of what I will call life which is required to be exchanged for it, immediately or in the long run.’
In Thoreau’s view, the cost of anything you bought was not the price of the item but the days of your laboring time needed to purchase it. We pay with the precious days of our lives.
He believed that the path to fulfillment lay not in shopping, but in discovering the pleasures of a non-materialistic lifestyle that offers an abundance of free time.
Thoreau would encourage us to ask ourselves, ‘What is the minimum I need to live on?’”
4-Try spending money on others instead of yourself. Spending money on others is another way that research has shown provides greater and longer lasting wellbeing.
Prosocial spending activates reward centers of our brains. When we give to others dopamine (reward), oxytocin (connection), and serotonin (happy feelings) are all produced. It can feel just as good to use your financial resources to enhance the life of another.
According to recent UNICEF estimates, the annual number of global under-five deaths has dropped from 12.5 million in 1990 to less than 9 million in 2008. Even so, an average of 25,000 children under five are dying each day, mostly from causes preventable with low-cost, proven interventions.
In addition there are 800 million people who live on less than US$2 per day. However there is good news. The number of people globally who are living in extreme poverty is decreasing.
Based on available data on charitable donations, a 2018 Giving USA report, Americans gave a total of $410 billion to charity in 2017.
More than two-thirds of Americans donated to charity in 2000, decreasing to 55.5% in 2014 with the average American donating $2,500 annually. The United States remains one of the leading nations in humanitarian aid worldwide.
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I would recommend checking out the following:
WATCH THIS STORY ON HOPE CHICAGO: https://www.cbsnews.com/video/hope-chicago-free-college-students-parents-60-minutes-video-2022-05-22/#x
A good read: Money, Race and Success: How Your School District Compare https://www.nytimes.com/interactive/2016/04/29/upshot/money-race-and-success-how-your-school-district-compares.html