Tuesday, April 7, 2009

Does Money Make you Happy? Psychology of Money Part II

Journal Entry: Weight = 177.2 lbs; Coinage with yesterday’s residual walk = $.78, 39 pennies, 1 nickel, 3 dimes; glass bottles retrieved = 3. I labeled This morning’s walk a “recession” walk. After 1 hour and 15 minutes of hard walking and focused looking I found only 17 downtrodden pennies.

Feature Entry: The issue of searching for lost money while walking for good health and weight control and having this combination of behaviors to be considered “bizarre” provided the impetus for these series of comments on the psychology of money. In fact, until recent times (the last ten thousand years) the behaviors would have been common. For thousands of years humans survived by walking long distances every day while looking for food for the clan. Moreover, there is hard scientific evidence that humans are hard wired to both exercise and search for objects of value, e.g. food in historic times, money in today’s times.

As reported in Part One, money is the modern analog for food. Most of us work in some sedentary occupation and earn money that is traded for food and shelter. The more we make, the bigger the house, the better the car, and the tastier the food. The logic leads to the conventional wisdom that the more we have the happier we are, that money makes us happy.

It isn't the case; scientific studies have shown over and over a low to moderate correlation between wealth and measures of happiness. One clue is that money and society interact; it is how much money we have in comparison to others that matters. Solnick & Hemenway, 1998, found that people would rather make $50,000 a year while everyone else earns $25,000, instead of earning $100,000 themselves and having other people earn $200,000.

So, if having money doesn’t make us happy, why do we work so hard to accumulate it? The noted psychologist Kahneman provides evidence that the motivation comes from the satisfaction of achievement, not from the things that money will purchase. Money helps us to feel satisfied, but satisfaction is lowly correlated with happiness. Some suggest that Americans are preoccupied with "being happy" when compared to other cultures that tend to focus more on "enjoyment."

A problem of measurement is that happiness is subjective. Lea and Webley tracked people with various levels of net worth—high, medium, and low--for several weeks. Every thirty minutes during the day they asked them a few basic questions about their current state of happiness. At the end of the study, no differences were reported between the groups. However, across groups, it was found that subjects were happier when they spend money on others.

We will have more to say on money and happiness later, but for now I hear Ms. Moneywalker in the drive way, she has been out buying presents for our grandchildren. Why am I not feeling happy while she has a big grin on her face?


1 comment:

  1. Current state of happiness, very high. Down to two layers this morning due to warmer weather. Even ditched the wool stocking cap and gloves for a ball cap and bare hands!

    But seriously, I have been on both ends of the spectrum from severely poor single-parent student to comfortably retired in my early 50s. I'm not a big spender (even on my grandchildren) but they do recieve a huge amount of my time and attention. That makes me happy.