Money Can Buy Happiness- If You Spend Your Dollars Wisely

Quick Take:

Careful what you wish for-because you may get it. We spend our days pursuing a laundry list of dreams, including the next promotion, a pay raise, the bigger house, the new car and a comfortable retirement. But when we finally realize our fondest desires, it is rarely as exhilarating as we imagine.

Here's where we go wrong-and what we can do to get more out of our time and our money.

Getting it wrong. Research suggests most of us aren't very good at figuring out what we want. Consider some examples.

We imagine that we would be blissfully happy with endless leisure. But as many retirees discover, endless leisure quickly becomes endless boredom.

We hunger for the promotion that will give us a loftier title and a bigger paycheck. But it turns out the new job is pretty demanding-and it leaves us with less time for friends and family, which is what most of us really enjoy.

We want the bigger house in the distant suburb. Problem is, we find ourselves unhappily commuting for hours every day.

We lust after the new car, imagining that it will somehow transform our lives. Unfortunately, after a few months, the car is just another way of getting around town-and we find ourselves hankering after something else.

Running the treadmill. All this might have you scratching your head. You aren't alone. In recent years, economists and psychologists have devoted a slew of studies to the so-called Easterlin paradox.

The conundrum: As a society, we keep growing richer-and yet we don't report being any more satisfied with our lives. Money, it seems, hasn't bought a whole lot of happiness.

In fact, the research has turned up considerable evidence for what's called hedonic adaptation or the hedonic treadmill. The notion: We crave that next pay raise, the big screen television and the new living room furniture. When we first get these things, we are indeed delighted. Soon, however, we're used to the fatter paycheck, the bigger television and the new furniture, and the initial thrill slips away.

The news isn't all bad. Hedonic adaptation may mean that the pleasure from progress quickly passes. But it can also mean we are likely to adapt to misfortunes.

For instance, we imagine that, if we were disabled, we would never be happy again. But the research suggests that those who become disabled quickly adapt, and soon they are almost as happy as they were before.

Because a general rise in living standards doesn't seem to boost happiness, some academics speculate that what matters is relative income and wealth. Sure enough, those with higher incomes report being more satisfied with their lives.

This, however, could be a "focusing illusion." Folks with handsome incomes may be no happier than everybody else. But when asked whether they are satisfied with their lives, they ponder their privileged position-and pronounce themselves happy.

Buying happiness. This doesn't mean money can't buy happiness. But you need to be careful about how you spend both your dollars and your time. On that score, here are nine suggestions.

Source: Jonathan Clements, Director of Financial Guidance, Citi Personal Wealth Management.

The information provided here is solely for educational purposes. It is not an offer to buy or sell any of the securities, insurance products, investments, or other products named. The information provided is solely for informational purposes. It is not an offer to buy or sell any of the securities, insurance products, investments, or other products named.

Sourcing: The Easterlin Paradox was postulated by economist Richard Easterlin in the 1974 paper "Does Economic Growth Improve the Human Lot? Some Empirical Evidence." That paper, which noted that rising living standards had not led to a national rise in reported happiness, spurred extensive research on happiness in the decades that followed. For a summary of the academic literature on happiness, see Stumbling on Happiness (Knopf, 2006) by Daniel Gilbert and The How of Happiness: A Scientific Approach to Getting the Life You Want (Penguin, 2007) by Sonja Lyubomirsky.