The connection between money and happiness has always been one of the most personal and complicated parts of the financial planning process. After all, "happiness" means something different to all of us. And those definitions can change as we progress through life, especially when we're navigating meaningful life transitions.
On today's show, we dive into some new research on money and happiness. We also discuss some of the important things in life that money can and can't buy and how a comprehensive financial plan can support your vision of happiness at every stage of your life.
Is $100,000 the new $75,000?
When discussing money and happiness, it's been common for folks who study finance to point to a 2010 study by Nobel Prize winners Daniel Kahneman and Angus Deaton. Kahneman and Deaton studied how money affected two aspects of well-being: the emotional quality of everyday experiences and how people evaluate their life as a whole. They concluded that increased income does improve both aspects of well-being. But our emotional well-being does not rise meaningfully beyond an annual income of approximately $75,000.
I don't think anyone would consider that level of wealth "rich." But, when this study was published, it seemed $75,000 would be enough for most folks to cover the necessities and live in relative comfort.
Thirteen years later, Kahneman collaborated with the University of Pennsylvania's Matthew A. Killingsworth and Barbara Mellers, whose research suggested that the $75,000 figure hadn't held up. In a newly published study, the three researchers have concluded that, for most people, happiness rises with earnings up to $500,000 per year. They also determined that about 30% of people are the "happiest" once they earn more than $100,000 annually.
The reasons for the financial gap between the two studies have a lot to do with the scientific method and how each team analyzed and collected their data. For our purposes, I'll point out that as time goes on, things get more expensive. My own non-scientific hypothesis is that $75,000 probably doesn't go as far as it did ten years ago for most folks. That could explain why crossing that $100,000 threshold resulted in the most significant boost of happiness.
Rich and unhappy.
However, an essential part of our comprehensive planning process at Keen Wealth is to put people before their money. In my experience, how people feel about their lives and how they choose to use their money can have a much more significant impact on their happiness than how much money they have.
And, in a sense, this new study bears that out. Kahneman, Killingsworth, and Mellers found an "unhappy minority" of about 15% of people whose unhappiness goes down as income rises but does not improve further once they earn $100,000 per year. While we can't pinpoint what exactly made these folks chronically unhappy, we can conclude from the data that having more money wasn't the answer to their problems.
Planning for happiness.
I've been thinking a lot lately about that unhappy group, what happiness really means, and the role of money in these questions because we experienced a major loss in the Keen Wealth family. A long-time client, who was also a friend of my father's, recently passed after a routine trip to the doctor. His wife of 64 years called to tell me, and my team began the process of settling this gentleman's estate. She said that before he went into the hospital, he'd told her, "If anything happens to me, call Bill Keen. Things are taken care of."
And they were. He had done a fantastic job of putting his affairs in order. His wife doesn't have anything to worry about on the financial side.
Is that a kind of happiness?
It's hard to use that word at such a sad time. But I know this gentleman felt confident that his plan would take care of his wife if something unexpected happened. And I know that plan made one small part of this sad transition a little bit easier for her.
No matter how thorough your financial plan is, money can't buy any of us more time. What it can buy are experiences with the people we love. The kinds of experiences and the kinds of happiness your money can buy will most likely change throughout your life. Happiness could be a big family trip at one stage, like the European cruise I'm planning for my family next summer. At another stage, it could mean contributing to a grandchild's college education or moving to a dream retirement destination. And at another, it could mean taking care of your loved ones even after you’re gone.
As your definitions of happiness evolve, Keen Wealth's comprehensive planning process can support your goals and needs. Make an appointment to sit down with one of my advisors and have a conversation about money, happiness, and, most importantly, your life.
Bill Keen is a financial advisor with nearly 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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