Does being rich make you happy?
Fed Chairman Ben Bernanke says here that it does to some extent, but that there’s more to life than chasing after money. Of course, Mr. Bernanke is not the only one to have this view on money and happiness. Numerous studies on happiness support his conclusions.
Here are a few thoughts on the points Bernanke makes in his speech:
Basic Human Needs Must Be Met
When people say that money does not buy happiness, they generally mean “extra money.” I think we can all agree, and research supports this view, that people whose basic needs for shelter, clothing and food are not met, will find it very difficult to feel happy.
Of course, there are exceptions, including people whose religious beliefs dictate that they should be happy with as few material possessions as possible, but for most of us, we can only be happy once our basic needs are met.
The Joneses Cannot Be Escaped
Happiness research shows that when people determine their level of happiness, how much they have compared with others is more important than how much they have in absolute terms. Again, this is assuming basic needs have been met.
Although rich people in a given country generally feel happier than poor people in the same country, rich people in a rich country do not feel happier than rich people in a poor country, even though in absolute terms, they have more. So, we tend to feel happy once our basic needs are met and we have more than the people surrounding us.
This means that while keeping up with the Joneses could be destructive if we let it go too far, it is also part of human nature to want to feel at least on the same level, financially, as those surrounding us.
However, we should not allow ourselves to get caught up in competing with our neighbors on external signals of “I have more than you do” which really mean nothing, because a big house and a big car and an expensive vacation could simply mean that one is in serious debt, and not that one is “well off”.
But You Should Escape The Rat Race
To me, the most important takeaway from Bernanke’s speech is the importance of staying out of the rat race. So yes, you need to work hard, get the education you need to land a good job, and work long and hard enough to get to a place where you can easily meet your basic needs.
What are basic needs? For most middle or upper middle class Americans, basic needs are not very basic anymore. We expect to be able to provide a family of 4-5 with adequate shelter, new clothing, plenty of food, health care and education, while also saving for our retirement.
This isn’t straightforward, certainly not in the US where people basically need to fend for themselves and there’s much less government support than in other countries (but also more freedom for businesses and entrepreneurs, less government regulations and lower taxes).
“Meeting basic needs” requires effort and dedication, but once those basic needs are met, take a good look at your life and at your career choices. Work-life balance is important. It doesn’t make sense to kill yourself, emotionally and physically, working 40 hours per week for 40 years in a job you hate and living for the weekend.
Can you find a job that you actually like? Can you start your own business? Can you work less hours, accepting a pay cut but improving your quality of life?
For most of us, once our basic needs have been met, happiness is achieved when we engage in activities that are interesting to us, spend time with friends and family and stay active. Making money for the sake of making money does not make people happy – on the contrary.
Ideally, these are questions that should be answered when you’re still young and just starting out. Don’t wait until your midlife crisis to realize that half your life has passed you by and you’re still unhappy.
Over to you now. It’s a big question, I know… but do you feel happy? Do you think your happiness is tied, at least to some extent, to your financial situation?
{ read the comments below or add one }
But it’s always good to stay on your A+ $ gUaP $ game financially.
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What used to be a simple life is not simple any more. I think that creating memories is better than buying stuff. So traveling with my family and creating those memories is better than buying a new car which will not be new for long and we will want another one sooner than we think.
I aim to return to a simple life and generate passive income to support me to enjoy the simple things in life without worrying about anything.
Thank you for a great article.
We people need something more than just to survive in life. We want to live and live as we want. Much of what we want is connected to finances. So, the more we have the more we can. The more we can, the more happiness we feel.
However, much depends on our attitude to happiness. One can have nothing but still feel happy. Because his attitude towards happiness makes him happy.
And sometimes a person who is very rich may not feel happy at all, because his idea of happiness makes him feel unhappy.
I truly believe happiness is tied to your financial situation. Of course money isn’t the only thing that brings happiness, but it helps a lot.
How many people would be happier if they had 3 times the money they have today? Except those that have health issues, 80 or 90% would be happier with 3 times the money they currently have.
And I think that being rich has nothing to deal with happiness. When you have a lot of money, you don’t feel free. You are a slave of money and they make you follow their wishes. For me freedom is the main thing, that makes me happy.
But you don’t have to be a slave to money. Money will only ruin you if you let it. If, on the other hand, you let it enrich your life by allowing you to partake in experiences that are expensive, it can free you from a defined lifestyle and allow you to live life to the fullest. I am not saying money is happiness or freedom, but I am saying that how you use it can create those things. To me, being able to get into my car and drive to the mountains for the weekend without concern of not having the money for gas or a place to stay is the kind of freedom I am looking for in life. If I feel the financial freedom to do what I want when I want (reasonably, of course), then I am making enough money. Everything else goes to savings.
I feel happiness is a state of mind. My happiness level has been pretty much at the same high level since I was a kid. The goal of making money and accumulating is just a game.
Money is never everything..but is something essential to survive. One can never keep up with the Jones and should never aim to do so as you will never be happy that way. I rather live within/under our means and have a small sum for rainy days available.
Having always practiced voluntary simplicity, I can say that most of my life I am very happy about how I handle money…but I am unhappy right now, because of the recession all my savings and retirement money is gone to keep our business a float and the Attorney General is holding up the stimulus money for our state with his nasty lawsuits about health ins. and finally because we can no longer afford health ins. since we pay for it ourselves…
This whole situation is taking up my time applying for jobs that I do not truly want in order to pay off our small debt on CC , regroup savings and retirement and purchase health ins. – and so we do not need to sell our house at a dramatic loss…who wants to go into retirement in poverty when on has worked long and hard all of their lives…
I am unhappy for all of those folks in my situation.
Hi Vered – I agree completely that when your basic needs are not being met, it is almost impossible to be happy. But, if you’re lucky enough not to want to keep up with the Jones’s, it makes life much easier.
I think I’m lucky, because my parents have their own business, and they were pretty frugal as I was growing up. Many of my friend’s parents were the Jones’s types, and as the years went by, I noticed that all that keeping up was actually making them poorer.
In saying that, I like enough extra cash, so I can travel, and feel secure.
“all that keeping up was actually making them poorer” – I’m sure it was. One can LOOK rich but have very little, and the worst is if you finance a lavish lifestyle with credit.
You make some good points, Vered.
On one hand, it downright sucks to feel poorer than your peers but it’s not so fun to be more well off than everyone else either. I think there’s a sweet spot of being in roughly the same financial position as your peers since when that happens, “keeping up with the Jones” is simply being yourself.
After the basic needs are met..happiness is family, friends, health, purpose. If those basic needs are met without money but just self-suffiency, you can still get happiness without money. Money is tool–not a destination.
“Money is tool–not a destination.” Exactly.
I think stress is more tied to money and finances than happiness. However, stress can definitely affect how happy one is.
No money is not everything. And without balance it cannot buy happiness. But with balance, it makes life a lot, lot easier.
I like what you are saying. Happiness is not found in making more money. I heard this in a song recently…”having money is not everything, not having it is.” I think that fits in with what you are saying here.
Keeping up with the Joneses is one part of American culture that we desperately need to change.
I’m not sure if society has the will to change our desire of keeping up, as it’s not just an American culture but human nature.
We could change if everyone just becomes more appreciative of what they already possess but this will be a seismic shift how we think.