How much MONEY do you really need to be HAPPY?
Don’t stress out. While researching her new book, MoneySmart columnist
Jean Chatzky discovered who’s content and what you can learn from their financial
More than a year ago, when I sat down to decide what my latest book should
cover, I thought I would write about the mounting consumer debt that has so many
Americans in its vise-like grip. Instead, I ended up writing a book about the correlation
between money and happiness. How did that happen? It actually was a confluence of
several things – some of them disturbing and some of them hopeful, as it turns out.
First, there was a March 2001 story out of England: Economists and researchers
Andrew Oswald and Jonathan Gardner at the University of Warwick had spent eight
years studying 9,000 randomly chosen people who had responded to an annual survey by
the British government. From this larger pool, Oswald and Gardner focused on a smaller
group of lottery winners and people who had inherited a large sum within the previous
year. Looking at their responses, the researchers eventually came to their conclusion:
Yes, money can buy happiness. The only hitch: It would take a lot of it – roughly $1.5
million windfall – to turn an unhappy person into a happy one. Because the average
American household income hovers around $42,000 a year, it’s clear that this level of
“happiness” is way out of reach for most everyone.
Next, I looked at the financial landscape: The markets were heading for their
second down year, ripping through the paper profits of people who, before the turn of the
century, had felt wealthy for the first time in their lives. And debt was heading up, up,
up. Credit-card debt in 2001 skyrocketed, topping $8,234 per household – nearly triple
the figure a decade earlier. The average household juggled (and still juggles) an amazing
16 credit cards; pull out your wallets and start counting if you don’t believe the
CardWeb.com research. And to staunch some of this plastic debt, people start draining
equity from their homes with home equity loans to the point that we own less of our
roosts than at any other time on record.
What a mess. I found the English research, coupled with the dismal economy
scenario, extremely disheartening. Talk about a mixed message: Sure, we now know
what it takes to make you happy. But sorry, you’ll never be able to have it. Clearly,
something was missing. It wasn’t until I started thinking about my own upbringing that I
thought I might know what it was,
I grew up in Wisconsin, the daughter of academics. We lived in a modest house
on a street filled with kids. Thinking back, there were plenty of signs that money wasn’t
plentiful during most of my adolescence. For entertainment, my parents and their friends
had potlucks and bridge nights, alternating houses. We owned two cars – first a Ford
wagon, and then, after it died, an Oldsmobile Delta 88. And when we traveled 900 miles
every year to visit my grandparents in Philadelphia, we got up at 4 in the morning and
Our family of five might not have dined out frequently, held season tickets to the
local sports franchise or theme park, owned one car per licensed driver or vacationed
several times a year – things many middle-class households take for granted – but I
certainly don’t recall any lack of money leading to any unhappiness.
Instead, my parents prioritized to pay for the things they thought were most
important. They alternated paying the bills so neither would get over-stressed. And my
brothers and I were expected to contribute. If we needed something that wasn’t in the
budget, we saved our allowances or baby-sat. When we traveled to Disney World, we
fully expected to bring our own money for mouse ears.
It seemed to me that if something was sabotaging the happiness of Americans, it
wasn’t the lack of money, but the way in which money was being managed. I figured
that if I was able to pinpoint the money-management habits of people who say they are
happy with their financial lives, then I could begin to write a new prescription that, if
adopted, could make a significant difference in the financial happiness – and perhaps
overall happiness – of Americans
So I created an eight-page questionnaire, with the help of some Money magazine
colleagues and the polling agency RoperASW, which was taken by 1,500 randomly
selected Americans. The results were even more intriguing than I had hoped. Sure
money plays a part in happiness; you need a certain amount to live comfortably today
(and my research puts that at about $50,000 a year – good news, because many people are
already there, or close). But beyond that, more money doesn’t buy more happiness. At
least not the sort of money that’s in any realm of possibility.
But better money habits absolutely can make a person happier. And from the
research results, I was able to isolate a number of good behaviors that respondents said
led to their financial well being (see tips at end of this article). I believe adopting even a
few can make a significant difference in your overall contentment.
That’s a notion even English researcher Oswald doesn’t find all that surprising.
“The ability to shape your own life, to control it, is very important. It’s highly associated
with psychological well-being,” he said when I told him the results of my survey.
Want proof? Imagine two families. The first earns $50,000 a year – not a huge
amount, but they’ve adopted at least four of the habits I mention (in my book there’s even
more from which to choose). They pay their bills as they come in. They’re generous
with their time and money. On the other hand, the second family earns upward of
$75,000 a year; but they have some bad habits. They pay their bills once a month, and
they don’t give to charity. So who’s happier: the family that earns $50,000 or the one
that earns 50% more?
Neither; Roughly six times out of 10, families like the first will say they’re
financially happy and families like the second will say the same thing. What makes the
first family as happy as the second? Good habits. People who manage their money in
productive ways are content; they don’t let their money manage them. Good habits make
the first family just as happy as if they earned half again more.
Thus, my conclusion became the books title: You don’t have to be rich – a notion
I find comforting given today’s economic realities. In other words, it’s not how much
you make that matters. It’s how you handle it.
Five financial habits that can make you happier
Although it’s difficult for most of us to increase our income
significantly (especially after a certain stage in our careers), we
do have control over our money-handling habits. Here are of the
good habits that emerged from the 1,500 Americans who
responded to my survey on money and happiness, conducted
BALANCE YOUR CHECKBOOK. It may seem like quaint advice, but it’s not. My
research shows that people who balance their checkbooks monthly are happier – perhaps
because they don’t worry that the next check they write will bounce. Or maybe seeing
that figure on the bottom line curbs the impulse to spend.
SAVE 5% OF WHAT YOU MAKE. Financial planners often say it’s important to
save at least 10% of earnings. In reality, you just need to cross the 5% threshold to see a
significant boost in happiness. Once you’ve shown yourself you can save 5%, you’ll find
it easier to save more.
MAKE A WILL. Americans have made progress in writing wills. The last big piece of
research to measure how many people don’t have wills put the number at 70%, according
to Consumer Reports. My research shows it has dropped to 57%. That’s still not
enough, especially because having a will results in less financial worry in the long run.
GIVE TO CHARITY. Whether you write checks to your favorite cause, volunteer your
time or give away your no-longer-useful belongings, the act of giving is good not just for
your beneficiary, but also for you. Why? it makes you happier.
TALK TO YOUR SPOUSE/PARTNER ABOUT WHAT YOU PLAN TO
CHARGE. One of the hottest buttons you can push in a marriage is borrowing money
without a spouses knowledge, my research shows. Many people don’t realize it, but
that’s precisely what your doing each time you charge on a credit card. So before you
slide that Visa through the electronic slot, have an honest chat first.
• From USA Weekend 9/19 – 9/21 2003 by Greg Garvan