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Wealth should be a means, not an end

Posted: Monday, February 16, 2009

One benefit of living in a rich country is that we can pay psychologists and professors to explain why wealth doesn't make us very happy.

It's true. Researchers have found that, once people can meet basic needs, psychological dividends from additional money steadily decrease. Making $100,000 does not make you twice as happy as making $50,000.

So why does losing money, and the prospect of losing money, make us so miserable?

The short answer is that it doesn't have to. If you think about money in the context of what economics says about true fulfillment, having less of it shouldn't be quite so painful.

With our retirement savings cut in half, vacation plans scrapped, car purchases postponed and debt up to our nostrils, let us hearken to the good news of happiness research.

It is possible to lead a full, meaningful, contented life without a Cadillac Escalade in the driveway or a second home in Aruba.

We knew this, of course. Jesus, Buddha and others told us. We always forget it in the fat years and begin remembering when the rouge rubs off and the vanities go up in flames.

But now science proves it, more or less. A growing body of research suggests that money, if not the root of evil, is not the fountain of satisfaction, either. And many of our feelings about money and financial loss are flat-out irrational.

"There is more to life than just consumption," says Amitava K. Dutt, a professor of economics at the University of Notre Dame who's teaching a course called Consumption and Happiness. "Sometimes when we are forced to consume less, good things can happen, although it's pretty bitter medicine to take."

Three decades ago researchers discovered that, on average, people in poor countries were pretty much as happy as people in wealthy countries so long as they had shelter, heat and food. Developed nations were richer in pocket than in spirit.

But within each country, richer people reported more satisfaction than poorer people no matter their absolute level of possessions. The key was status, having more stuff than one's neighbor, whether in goats or swimming pools. The unhappy had less than what their peers had or what advertisers suggested was adequate.

More recent investigation has found that the negative emotions that investors feel when losing money are more intense than their pleasure when gaining an equal amount.

Neither of which is rational. Your neighbor's lifestyle, no matter how luxurious, has zero material effect on you. If you weren't over the moon when the 401(k) went up $50,000, maybe you shouldn't need therapy when it crashes by the same amount.

Last month The New York Times illustrated the tendency to focus on relative wealth. Reporter Peg Tyre profiled a couple in Darien, Conn.

The husband lost a Wall Street job. The family economized by replacing a full-time nanny with an au pair and taking less-expensive vacations. They still resided in an upscale town, belonged to the country club, had paid off their mortgage and had saved money for kids' college.

Even accounting for setbacks, they lived better than 99 percent of everybody who ever existed. Yet they were stressed and worried.

In the grand scheme, money is less important than other assets anyway, happiness experts say. In the long run, friendship, marriage, education, sex, group memberships and exercise all promote happiness in ways that mere income and consumption cannot.

"I'm thinking about how thankful I am for my friends and family," a top money manager told me in November, during the worst of the financial crash.

It was half gallows humor, a Wall Street cynic's way of saying: I just got wiped out. But it also signaled the shifting values that often accompany economic slumps.

"My advice is to start rethinking where we are getting our message about the appropriate levels of consumption," says Omar S. Dahi, an assistant professor at Hampshire College in western Massachusetts who also teaches a Consumption and Happiness course. "I would say it is highly influenced by the media. It is highly influenced by advertising. This crisis for some people is an opportunity to really rethink some of those things."

This is not to minimize the pain of recession. Losing a house or a job is psychologically devastating, far worse than stock-market losses or temporarily lower income.

And we shouldn't reject wealth and growth altogether. Rising gross domestic product is strongly associated with what does matter: lower infant mortality, better health, longer life span, balanced government budgets.

Wealth is a means to happiness, not an end. Bank statements and sticker prices make it easy to keep consumption score. There is no Dow Jones friendship index.

But Albert Einstein had it right. "Not everything that can be counted counts," he said, "and not everything that counts can be counted."

• Jay Hancock is a columnist for The Sun.



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