Your Money, Your Brain, and Your Happiness

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In the book Your Money and Your Brain, author Jason Zweig explores neuroeconomics, which apparently is a mix of psychology, neuroscience, and economics. This book looked like it would be an easy read, but it turned out to be very densely packed with information and data from numerous psychological studies. Truth be told, it got kind of tedious and repetitive, which is why it took me over a month to finish reading it. I think more aggressive editing would have helped this book a lot.

Instead of trying to do an in-depth review, I’m just going to focus on a few interesting points brought up in my favorite chapter titled “Happiness”. Isn’t being happy our ultimate goal?

If I was rich… I’d be happy. Right?
When you are below the poverty line, then yes, making more money is correlated with happiness and even better health. But as long as you have enough to meet your basic needs, more money doesn’t buy very much more happiness. We think it will, but it reality it doesn’t. This has been shown in studies comparing African tribal herders with the Forbes 400 Richest People, ones comparing people with $500,000 net worth and those with $10M+ net worth, and even between different generations of Americans:

In 1957, the average American earned about $10,000 (adjusted for inflation) and lived without a dishwasher, clothes dryer, television. or air conditioner. But 35% of people surveyed said they were “very happy” with their lives. By 2004, personal income had nearly tripled after inflation, and the typical house was bursting with consumer goods. Yet just 34% of people now said they were “very happy”. Somehow, almost tripling our wealth has made Americans a little less happy – and still we want more.

Chasing Happiness
Similarly, people think that “splurges” or getting that next hot gadget will make them happy. In truth, studies reveal that the anticipation of obtaining that object makes your brain’s dopamine levels go nuts and you feel happy. Actually getting it? Not so much. Which leads you to thinking about the next hot gadget… and so on. The “thrill of the hunt”, eh?

Keeping Up With Those Darn Joneses
It turns out that your happiness is related money in one way – how much money the people around you have! Social comparison is a very primal instinct in humans and other animals. One theory is that such attention allowed people to imitate the stronger hunters and learn to be more like them.

For example, should you buy the nicest house in a middle-class neighborhood, or a below-average house in the richest neighborhood? Your real estate agent might point out that buying in the rich neighborhood offers the best potential for home value appreciation. But the data suggests that buying in the middle-class neighborhood and getting a bigger house than everyone else will likely make you happier.

A study of more than 7,000 people in over 300 towns and cities found that, on average, the more money the richest person in your community makes, and the greater number of neighbors who earn more than you, the less satisfied you will probably feel with your life.

The relationship between money and our brains is an interesting one. It’s good to learn about those innate tendencies, so we can recognize them and react appropriately.

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Comments

  1. This is a very interesting topic. To be honest, the happiest people I know are the ones that make the least money.

  2. the “keeping up with the joneses” for many the driving force in their life. i dont think people will admist that, though.

  3. Sometimes, ignorance really is bliss. If you don’t know what material luxuries you are missing out then you tend to be more content with what you already have.
    -R

  4. I must help make the people in my neighborhood happy. I live in a middle income neighborhood, but my house is one of the smaller ones 🙂

    This post reminds me of a comment recently left on another post. Someone could not believe that earning $100,000 puts that person in the top 10% of incomes. I think that is an example of comparing oneself to others they know. If the person stops to think of all of the jobs that don’t pay over $100,000, then it doesn’t seem so out of line. Relatively few in manufacturing labor do, few in retail do (Walmart itself employees 2 million people), few in education do, few in government do, and on and on. High tech and professional jobs are usually surrounded buy people with similar income and are generally paid well (much better than the rest); so in comparison the pay it may not seem like much. Especially if spending expands to consume the income.

  5. That sounds like a great book. I sometimes wonder whats the real reason behind making money and investing it. I’ve yet to read anything that dealt with money and happiness. Most of the books cover making money or investing it. Thanks for the review

  6. Very true……my wife and I now earn around $220K per year and this has not contributed to any additional happyness (intentional misspelling).

    So what is the pursuit to happyness? I agree that if ur below poverty level, it does help…..but after a certain stage it means jack shiat.

    Someone making $200K will buy the same car as someone making $100K.

  7. Just wanted to point out (though I’m fairly certain you didn’t mean this literally) that living above the poverty line, even well above it, does not in any way necessarily translate to having enough to meet basic needs. The poverty line is amazingly low and many live in poverty who fall far above that line.

    Additionally, with the cost of healthcare and health insurance these days, even more money is needed for the basics (I consider being able to afford health care required to survive a basic necessity). Many so called middle class do not have enough for this necessity. So when we are talking money and happiness, that it only makes a difference for those who are poverty stricken is a myth.

    Many families in the US cannot afford to have necessary healthcare and sometimes what it takes to be able to afford it is hundreds of thousands of dollars (even with insurance, in fact I just did a series of posts on this on my blog). So I have to question the claim that the happiness of only those below or near the poverty line is affected by money. I’m sure many going through serious illness without the ability to get needed care is not the happiest person and who can blame them?

    Yes, Tvs and dishwashers aren’t what makes us happy. Security, community, and having our most essential needs met do. Sadly that is something many are lacking today, even many of those who do earn what is considered a decent salary. And not because they are blowing the money on TVs and dishwashers but because the basics particularly healthcare–and in many areas housing as well–has gotten increasingly and exponentially unaffordable and in the case of health insurance and access to it unreliable as well.

    If African herders were happier (and I’m not sure you can really measure and compare happiness scientifically anyway), I’m guessing it has to do with community and social support, something many of us are losing or have pretty much already lost here in the US. Without community support, even more money is needed to make up for the help and safety net many of us don’t have in extended families and local communities.

  8. MobileDeveloper says

    We are earning (jointly) about 10x since we started working, but if anybody thought that money = happiness then I am sure they have not enjoyed the other pleasures in life:

    1) Silently watch your kids playing and laughing, oblivious to the world and other things — this really brings a sense of happiness
    2) Sit back and enjoying a favorite drink – wine or whatever, life is in a fast pace — so we like to soak it in and slow the pace.
    3) Kids do something good in school – non academic.
    4) Small gifts / gestures from spouse
    5) You lead a project to a successful launch at work

    I think in my experience, happiness is about family and the other small little things in life:
    Life is precious (enjoy responsibly, while you can) and there are MANY things in life Money can’t buy 🙂

  9. i believe that I am the person that couldnt believe that $100k puts you in the top 10% in earnings in the United States…

    and i still dont buy it. earning $100k will NOT allow you to splurge on much and still have a substantial amount left over for savings/investments/etc. its not like you no longer have to worry about how you spend, can go out every night, can buy $100k cars, take luxury vacations often, and so forth. to live the lifestyle just mentioned, I would say you would have to be earning $250k+ a year AFTER taxes. to really not worry about anything at all, id say $1M a year.

    yes obviously someone who is making $40,000 salary working 2000 hours a year will look at someone making $100k and say wow i wish that was me. but when you are at 100k, you think 250 will be amazing. when you are at 250, youll want 500. even if you arent spending it all. its a mental thing.

  10. This post really struck a chord with me. I spent a couple years of my life in some of the poorest parts of Chile, and I can attest to the fact that money does not equal happiness. I met families living in shacks that were happier than any family that I’ve met in the US. Even though I returned from Chile 5 years ago, I still think about these people and try to follow their example.

    The standard of living that we enjoy today in the US is mind-boggling. It’s sad to see that this society cannot differentiate between needs and wants. Today, people categorize cell phones, high speed internet, satellite TV, nice cars, etc. as needs. They are wrong. People only need food and shelter to survive. Granted, it would be nice to have a job (and transportation to it) to provide sustained food and shelter for their families.

    CS Lewis sums it up quite eloquently: “Pride gets no pleasure out of having something, only out of having more of it than the next man.” Seems like we live in an awfully prideful society.

    For me personally, my greatest happiness in life comes from my family.

  11. I have wanted to read this book because I feel that sometimes I forget about the insignificance of material items. I canceled my cable a while back just so I could save some money and I remember feeling anxious and almost upset about it. It was like I couldn’t imagine my life without it, which then made me feel even more uncomfortable. I’m the type of person that saves like crazy and lives pretty simply for the most part, but then I don’t understand how people probably making the same amount as me or less live the glamourous lifestyles that they do. I know I compare myself which is ridiculous, but sometimes I feel like it’s hard not to. I find that sometimes I do lose sight of what’s really important and I really need to make an effort to not get sucked into the materialistic bubble that we sometimes find ourselves in, especially around the holidays.

  12. Thanks for the review Jonathan. After just spending almost two years living in one of the poorest and most corrupt places on earth has definitely made me aware that money does not buy happiness. Some of the happiest people I have ever met were Chadian who probably made less than half of our minimum wage. They literally live in mud huts if they can afford it. They have 6, 7, 8 or more kids (that?s the ones that lived). They have that many ?because some will not make it through a year old? But they are happy, content, and for the most part nice, friendly human beings. Some say ignorance is bliss, that if they never know better things exist then they are fine with out it. How ever these people know nicer things exist. Their president has 10 white hummer H2?s and 10 Black ones that take him back and forth from the airport and the presidential palace when he travels to Paris, and all over the world. This summer I traveled to Pompeii in Italy and was amazed to see that thousands of years ago they were more advanced than the country of Chad is today. But for the most part the poor Chadians are happy even though most of their ?wealthy? are far below our standard ?Poverty Line?. So although they know better things exist they are happy with their families and mud huts. Just goes to show Different strokes for different folks I guess.

  13. It just shows that money can’t buy happiness. Like the poster above said, I believe that there is a huge element of keeping up with the Joneses involved. While I like “stuff”, I am constantly amazed at what people think they need. People need to be more secure in who they are and quit worrying about what other people think of them. Also, this plays into the current levels of credit card debt. There is no delayed gratification or willingness to work for a longer term goal. Boy, I sure sound like an old fart!

  14. Bryan:
    There are references that back up the “earn > $100k puts you in top 10% of wage earners”.

    http://www.taxfoundation.org/news/show/250.html
    http://www.kiplinger.com/features/archives/2007/11/taxrank.html

    This one mainly talks about household income versus taxpayer income.
    http://en.wikipedia.org/wiki/Household_income_in_the_United_States#Household_income_over_time

  15. Good review. Sounds like an interesting read. Even with tons of money, our go, go, go society has made it difficult to slow down and actually enjoy life.

    Work, eat, sleep…
    Work, eat, sleep…
    Work, eat, sleep…
    Work, eat, sleep.

  16. Sandra Jensen says

    I like your anti-spam word! 🙂

    I read alot of finance blogs – so having a book on finance to read would be great. Thanks for all your good ideas!

  17. A lof of it have to do with how we live our lives. Being frugal and saving a ton of cash in the bank seems to make one feel a bit secure, but I’m starting to wonder: why do I be frugal and save so much and when I’m 60+ years old, I don’t have the same physiques to enjoy life as when I was young? Shouldn’t I be more generous to myself and buy me something materially enjoyable while I’m still physically able to?

    I wonder: Warren Buffet and Bill Gates got so much material wealth, does the money wealth make them happier? Not necessarily. They already have enjoyed whatever money can buy for their own material luxuries that they can’t be happier spending money to themselves to a point where they have to spend their money wealth to philanthropy in order for them to feel happier.

    So, the conclusion seems to be: money is just one of many ways to make you feel happy. Money is not the only way to happiness.

    Another way to see it, maybe happiness is composed of two parts: material happiness, and spiritual happiness. For our frugalers and savers, we probably are skipping away material happiness most of the time. We drive old beat-up cars to save on gas, and skipping the comfort of luxury cars, live everything frugal and save money. We are not wasting, keeping everything minimum and reduced. Not sure if there is a way to enjoy luxury yet environmentally and economically friendly. Maybe our human civilization is not that advanced yet?

  18. My husband is a psychologist. He graduated with top honors from Johns Hopkins. Straight out of college he got a great job with a great company. He skipped right to the middle management on his entry job. If he’d stay on that job, I am sure he would retire at the top and a millionaire.

    Yet, he got very bored, left in a year and all his life did anything but making money or saving or investing… He bread ferrets as pets, wrote and published poetry, played race track, read and enjoyed himself. I wasn’t married to him for that part of his life. We only have been married for the last decade.

    His case of dis-interest in material things is somewhat extreme. But he is the happiest, the most easy going man I’ve ever met. His ability to enjoy every day no matter what is contagious.

    And that would be all fine and dandy, plenty of people can enjoy themselves. What makes my husband’s attitude special is that now he is dying of a horrible, incurable illness. But nevertheless he is just as happy and content as before.

    Like my husband I don’t care much for material things. But I am interested in money and investing. I wouldn’t read this blog, would I? To me earning and investing is a game where money are used to keep the score. But I graduated to a point where I would never work for money only. I would only work if I enjoy the work and got paid for doing it. Lucky for me I can do many different things, mostly art related.

    One of my husbands poems is One Way Street. It reads like this: “A cigarette smoked is irredeemable/ A life burns out the same way/ Quickly, irrevocably and in one direction. It was written many years ago when my husband was in his 20’s. I know there are a lot of 20-something read this blog. Take it from me, it burns quickly, quicker than you think..Certainly, much quicker then I thought..

  19. I have been hearing a lot about this book in the last couple of days. Seems like a very interesting read. A free copy would be nice.

    really enjoy your blog. thanks.

  20. This is cool. Sign me up too. Thank you
    pruechan@gmail.com

  21. Brian Reese says

    Funny you should mention the struggle to find happiness. I recently read Stumbling on Happiness by renowned Harvard psychologist Daniel Gilbert. I really enjoyed the book and it changed my perspective on things relating to future happiness.

    I posted a quick review with some take-aways on my blog. I highly recommend it if you can’t seem to find happiness in your life.

  22. As the story said, people in the US are less happy than they were in times past and there are also many statistics that Americans are less happy and satisfied than other people around the world. The endless pursuit of stuff and the mythology that if you buy more then you’ll be happy. Still a holdover from the baby-boomers “me first” mentality and Reaganomics. Hopefully the tide is starting to turn as more and more people realize what a sham this attitude is and what a house of cards its made our country and our economy into.

  23. Money would definitely make me happy if I won the lottery so I can pay off student debt and a house! I feel like I’m working to pay those things off rather than working to enjoy working!!

  24. AWESOME. I have so many people to forward this to.

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