Monday, January 29, 2007

Why You Won't Laugh All the Way to the Bank

My favorite financial columnist, Jonathan Clements, on wealth and happiness:

In recent years, economists and psychologists have turned their attention to "happiness research" -- and the results are a little disturbing if your life's goals are a bigger paycheck and a fatter nest egg. Money alone, it seems, just doesn't buy a whole lot of happiness.

"...once you're safe and warm and fed, [money] makes surprisingly little difference," says David Schkade, professor of management at the University of California at San Diego. "Once you get to the lower-middle class, then it takes a lot of income to make a difference. Income does matter, just not as much as people think."

If more money won't make us much happier, what will? Here are four pointers.

Keep your commute short. Tempted to use your latest pay raise to buy a big house in a distant suburb? Don't do it.

While we often adjust amazingly well to life's hardships, commuting is an exception. "You can't adapt to commuting, because it's entirely unpredictable," says Daniel Gilbert, author of "Stumbling on Happiness" and a psychology professor at Harvard University. "Driving in traffic is a different kind of hell every day."

Choose time over money. Cutting back the hours you work will likely leave you happier, even if it means less pay.

What about the fall in your standard of living? It may hurt less than you imagine. True, you are thrilled when you buy a new car. Soon enough, however, the good feelings fade and you're taking the new car for granted. Academics call this "hedonic adaptation."

Think carefully about how you spend your dollars. While a new car may not boost your happiness for long, maybe a trip to Europe would.

"Money itself doesn't make you happy," Prof. Gilbert says. "What can make you happy is what you do with it. There's a lot of data that suggests experiences are better than durable goods."

The car might seem like the better purchase, because it has lasting value. But, in fact, it sits in the driveway, slowly deteriorating. "Experiences don't hang around long enough to disappoint you," Prof. Gilbert says. "What you have left are wonderful memories."

Use your leisure time wisely. Surveys show that leisure is better for your happiness than work. But much also depends on how you spend your leisure time.

Passive activities like watching television usually don't make folks as happy as eating. A good meal, in turn, doesn't rank quite as highly as active leisure activities, such as socializing with friends.

"Going to a dinner at a nice restaurant, where you're going to see friends and eat good food, is one of the best combinations," Prof. Schkade says. "The French know what they're doing, when it comes to how to enjoy a good meal."

Some of My Previous Posts on Happiness:

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