Money Talks, So Should You

Q&A: Is there a connection between money and happiness?

Michael Goldman
by Michael Goldman, The Garrett Network (@wealthgathering)

Conventional wisdom says money won’t buy happiness. My response is, “If you agree, you’re probably not spending it right.” A lot of interesting behavioral economics research backs this up.

Before I talk about the research, let’s agree that extreme poverty is not in itself a happiness-inducing state! Money can buy many things we think of as contributing to happiness, like food, better health care and more family time.

SLIDESHOW: 15 happiest countries and average income

Nobel laureate Daniel Kahneman and his research team conducted a study showing that additional income can increase happiness, but only up to a certain point.

A psychologist and pioneer of behavioral economics, Kahneman determined that happiness would increase as household income approached $75,000, but more income beyond that amount brought diminishing returns.

Additional studies reveal that spending money in certain ways can make it more likely that money will increase your happiness or personal satisfaction.

SLIDESHOW: 15 unhappiest countries and average income

For example, purchasing frequent, periodic small pleasures rather than occasional big-ticket items, using money to benefit others and buying experiences instead of things can all put a smile on your face!

It also helps to delay purchases so you can enjoy the delight of anticipation — and saving for something instead of using credit has other benefits too.

 

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Michael Goldman, M.A., CFP®, is an expert in financial coaching and behavioral economics. He helps individual clients identify and reach meaningful life goals by making smart financial decisions. He is also founder of WealthGathering.com, the online social community that works as a personal trainer for financial fitness.