Books about money and investing are full of info on how to boost your wealth. But I’ve never seen one that also asks ‘why?’.
At first that might seem a silly question. More money buys us more things and more experiences, and that adds up to more happiness, right?
Not necessarily. Lots of research shows that once we have a certain amount of money – enough to easily cover the basics and have some fun – having more doesn’t necessarily make us happier. In fact, one recent study suggests that beyond a certain point, people with more money are less happy. More on this later in the book.
For five years I taught a course on financial literacy to non-Business School students at the University of Auckland. Worried that students might think my main message was ‘the more money, the better’, I asked every student to attend a discussion group where we looked into what made people happy, and the role of wealth in that.
Before coming to the class, the students were asked to do the following (which I dreamt up one day on a long drive). You might want to try it.
1. Write a list of eight individuals or couples you know well.
2. Give each one a score of 1 to 5 for wealth, with at least one getting a 1 and one getting a 5.
3. Give each one a score of 1 to 5 for happiness – again with at least one 1 and one 5.
4. See if the high scorers for wealth are also the high scorers for happiness.
Some students found the two were correlated – that wealthier people tended to be more content. But many saw no clear correlation, and every now and then someone saw the opposite – their poorer friends and relations tended to have a better time.
On balance, though, the students did tend to know more happy rich people than happy poor people. So is the research wrong?
Nick Powdthavee, a UK professor of behavioural science who looked at a great deal of research for his book The Happiness Equation, raises an intriguing question: Does wealth make us happier, or do happy people get wealthier? He found that happy people:
• tend to be more creative and productive
• have better health – which tends to lead to more wealth
• are more likely to be financially successful
It seems that happiness is more likely to lead to wealth than the other way around.
As Nobel Peace Prize winner Albert Schweitzer put it: ‘Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful.’
If you start out with a happy disposition, there’s a good chance you’ll end up well off. If you start out grumpy, you’re less likely to do well financially. Of course, you might get lucky with money, but it’s unlikely to change your outlook on life.
So where does this leave you, as you’re starting to read a book about investing? Why try to get richer if it probably won’t make you happier?
Check back to what I said above. While wealth and happiness don’t seem to be highly correlated after you’ve got the basics well covered, many of you will feel you haven’t covered all the basics yet.
Nobody would argue that if you’re struggling to cut credit card debt, or to get together a deposit for a modest first home, or to save up enough to do some fun things in retirement, having a few more bucks wouldn’t be welcome.
Even if you’re financially comfortable, more money gives you more choices. These might include supporting others, from family members to charities.
So, while it may not make sense to put lots of time, effort and worry into absolutely maximising your wealth, it does make sense to take a few straightforward steps to make your money work better for you.
Read this book, take the steps that apply to you, and you’ll have the money stuff sorted. You can then spend less time working and more time getting on with things that will really improve your wellbeing.
What might that be? At the end of the book, we’ll look a little further into some of the fascinating research about what makes people happy. But for now, let’s get on with making you financially strong enough to make the most of your life.