Money Situations that Make People Happy

Happiness in people is something that's difficult (or maybe even impossible) to pinpoint with certainty. Thomas Stanley (the Millionaire Next Door author) has tried to get at what makes people happy by looking at "more than 200 characteristics, behaviors and attitudes of 1,574 high income/high net worth respondents."  (FYI, he notes that "correlations do not necessarily indicate cause and effect.")

Here's what he found:

Beyond health, family and job factors, why are some people more satisfied with life than others?  In terms of statistical significance, the higher one's level of happiness the more likely he/she is to agree with the following statements [by rank order of variation explained]:

1.  I have more wealth than most people in my wealth/income group.

2.  We are financially better off than our neighbors.

3.  I donated 5% or more of my income last year to charity.

4.   I live well below my means.

5.   I was raised in an atmosphere filled with love and harmony.

6.   My parents taught me how to invest and manage money.

7.   Politically, I am more conservative than liberal.

8.   I inherited less than 1% of my net worth.

9.   My spouse is more frugal than I am.

10. I invested 10% or more of my income last year. 

Also note that both net worth and income are associated with happiness.  Statistically, net worth is the more important of the two.  But even more important than net worth is relative net worth (as suggested in Item 1 above).  Relative net worth is all about how productive one is in  transforming his/her income into net worth compared to others in one's income and age cohort as well as within the context of one's neighborhood environment. 

Those who can easily afford their consumption lifestyle tend to be significantly happier than those who struggle to make ends meet by acting rich.  I have consistently found that those within the same income/age cohorts who were raised by loving and nurturing parents tend to spend less and save more of their incomes than those who are not raised in this type of atmosphere.  

Wow. There's a lot to comment on here. My thoughts:

• Again, it's relative wealth/income that seem to make more difference than absolute wealth/income. We discussed this in more detail in Relative Income a Better Predictor of Happiness than Absolute Income. 
• Also again, giving and happiness are connected.
• Many people think that living below your means relegates you to a boring, unfulfilled life. It's exactly the opposite -- it frees you up to enjoy life more, as I described in The Joy of Wealth. 
• "I was raised in an atmosphere filled with love and harmony." Combine this with the last sentence ("I have consistently found that those within the same income/age cohorts who were raised by loving and nurturing parents tend to spend less and save more of their incomes than those who are not raised in this type of atmosphere.") and I'm sure someone reading this will get upset. But you can see how it would be true (not in every case, of course, but in general.)
• And if there's anything that could even be more controversial, it's statement #7. Ha! I'm going to love to see the comments on this one. ;-)
• Working for your wealth and saving a good portion of it are both big factors as well. Notice anything about what he's saying and what I preach here every day?
• Having a frugal spouse is one major key to becoming wealthy. Why? Because even if you're a big earner, you can still have a big-spending spouse that can use all you make and even more -- pulling you down financially. I'm blessed to have a spouse who is even more frugal than I am (though it can be a pain at times when I want to buy something.) ;-)
• Note that net worth is more important than income -- as it should be IMO. It's not what you make but what you keep that's the true indicator of wealth. That said, you don't have to give up one to do the other. Why not work to have a big income AND a good net worth?

Comments

[KH]

Hmmm...but:

Politically, Jews are more likely to be liberal than conservative.

Yet your last post provided lots of statistics showing that Jews are wealthier and better off than non-Jews--so they are more likely to have characteristics 3,4,8,9 and 10 in addition to probably several of the other characteristics as well.

Just how statistically accurate was Stanley's poll?

[JoeTaxpayer]

"I have more wealth than most people in my wealth/income group."

I find this one to be a bit sad, in a way. I'm no happier for the the fact that I have a neighbor who seems to have a tough time making ends meet, nor am I jealous of the guy who is doing better, he leaves early, gets home late and earns every dime.
I don't doubt the statement's truth/correlation.

[FMF]

KH --

I assume you're referring to the line "Politically, I am more conservative than liberal", correct?

I'm sure you're aware that Jews make up a small portion of the population (which was also in the post you referred to), so it's very easy to see how they could be more wealthy than average and still be liberal, but that the statement above could still be true. If you can't see it, let me know and I can give more details/specifics.

[Curt]

#3 reminded me of a talk given at my alma mater last year, thought I would share:

http://magazine.byu.edu/?act=view&a=2441

#7 is a tricky one...but remember we're talking 'satisfied with life', not 'wealthy', so it still could work with the previous posts on Jews.

Sadly, I fine #1 and #2 to be true. I don't get satisfaction from others doing poorly, but it helps validate the decisions we make when we see how we are doing relative to others.

[Holly]

I think it would make sense that those with a higher wealth/income describe themselves as more conservative than liberal since they are looking to preserve their wealth.

[Mark]

Who said: A young man who is not liberal doesn't have a heart. An old man who isn't conservative doesn't have a head?

[Anon]

Answer: A hardcore alcoholic who hated Gandhi and Jews...

Not sure about #7, everyone on Fox News is always angry and screaming.

[todd]

Curt - Thanks for sharing the article. I enjoyed reading.

#1 is an interesting one for me. I have a WSJ article somewhere (printed probably 5 years ago) where a study concluded that the number one predictor of happiness is being the richest person in your neighborhood, or something like that. Very similar to #1.

[KMI]

Something to note with #7 - It did not say "I am conservative instead of liberal", but "I am MORE conservative than liberal". The MORE implies that there is a continuum, and people on the extreme ends aren't included. There are conservative Democrats and liberal Republicans. I imagine most people who see themselves as conservative also advocate personal responsibility, hard work, saving, planning, etc. These all seem to be elements which lead to greater wealth and the feeling of controlling one's one destiny - which link to greater happiness.

On a silly note, I could argue that when you know you are right you are happier than if your mind is open enough to admit to being wrong :->

[Catherine]

#7. How is this Controversial? It is as expected as sun rise in the east and sunset in the west.
One guy looks at climate change and produces a depressing movie about the grim future of our planet.
Another guy looks at climate change and invests in the largest wind farm in the world.

Any question as to the political party of each?

[Apex]

Lots of cognitive dissonance again here about #7.

Again, you don't have to like it but facts are facts. I am sure some would like to argue that it's because conservatives/republicans are greedy b**tards, don't care about others, take advantage of people, are bad people, are self deluded as to their actual level of happiness, believe in religious fairy tales that make them feel good, etc, etc, etc. Whatever reason you want. None of that changes the statistical fact that Republicans and Conservatives self report as being happier.

http://pewsocialtrends.org/pubs/?chartid=10
http://pewresearch.org/pubs/301/are-we-happy-yet
http://pewresearch.org/pubs/?ChartID=39

It's been true every year since they started the General Social Survey in 1972 and in all the Pew Surveys since they started them in 1991. This is not something new nor is it an anomaly.

Now Republican is not exactly the same as Conservative and the Pew article alludes to that. Conservative is not the whole picture as religiosity and wealth also have impacts on levels of happiness as well. Some people would say if they have to be religious to be happy then they don't want it. And so who says happiness is the highest ideal. That's for different people to rate differently.

But Republicans and Conservatives are happier, deluded or otherwise.

But many people don't like it for obvious reasons and thus we get many of the comments here.

[janetJ]

A study was actually conducted to determine why conservatives are happier, and the result was that because they felt like they had control over thier own life. They believe that if you work hard and act responsibly, you can change your life situation. Liberals on the other hand tended to blame others for thier problems - it is the governments fault or rich peoples fault - and nothing they can do can change this.