MONEY psychology of money

The Only 3 Things You Need to Know About Money and Happiness

happy and sad piggy banks
Sharon Dominick—Getty Images

The final word on whether money truly makes people happier still eludes us. But here's what we know so far.

Maybe you’ve watched Citizen Kane recently—or just heard the truism that “money doesn’t buy happiness.” Either way, you may not be surprised by a new study showing that more income doesn’t seem to make people more content.

The findings, by researchers at the University of British Columbia and Michigan State University, do come with a twist, however: While more cash doesn’t increase joy, it does decrease sadness. “Having more money provides more options for dealing with adversity,” explain authors Elizabeth Dunn, Kostadin Kushlev, and Richard Lucas. “Wealthier people may feel a greater sense of control than poorer people when difficult situations arise.”

So, for example, a leaking roof might be annoying for a few days if you’re rich, but a months-long ordeal that can cripple you physically, financially, and emotionally if you’re poor. Makes sense, right?

Problem is, studies about the relationship between money and happiness seem to be a dime a dozen these days, and their headline conclusions don’t always line up. (Several respected economists, in fact, claim to have found a positive correlation between money and happiness.)

So who’s right? Does it make sense to follow the money in pursuit of happiness, or not? Well, it turns out that a lot of the research that seems contradictory on the surface is actually complementary when you dig a little deeper. Here are three key lessons from across the literature:

1. Money increases certain types of happiness more than others.

About four years ago, Princeton researchers made headlines with a new study showing that happiness increases along with income up until $75,000, after which point it plateaus. More recently, a pair of University of Michigan professors found that, actually, more money means more happiness without bound.

At face value, these findings might sound at odds, but the seeming contradiction arises from the fact that the researchers used different definitions of “happiness.” Specifically, the 2010 Princeton study measured so-called daily happiness (“How was your day yesterday?”) while the Michigan folks looked at overall assessments of satisfaction (“How do you feel about your life?”). Those are very different questions, and reveal different insights.

While the newest study also used a “daily” metric to calculate happiness, it went further by asking for a full narrative about each day and how subjects felt during three activities. What the new research revealed, says Kushlev, is that what appeared to be happiness in the Princeton study might be better described as a lack of sadness. “When an even more fine-grained measure of happiness is used, no relationship between income and happiness exists,” he says.

Nobel-prize winning economist Daniel Kahneman, who co-authored the 2010 Princeton study, says these new findings don’t refute his so much as they measure contentment—or a lack thereof—from a different angle. After all, it comes down to how one views that $75,000 ceiling on happiness: Financial difficulties get harder and harder as your income descends in the five-figure realm.

“We also found the same effect of poverty on happiness,” says Kahneman.

In short, money makes you happier about your life overall—if not about your day—and, at the very least, softens the pain of bad luck.

2. If money can’t buy happiness, happiness just might generate money.

It’s important to remember that what we know about money and happiness is not based on experimental science (the conniving businessmen in Trading Places may have been okay with human experimentation, but academics aren’t). As such, money and happiness have been shown to be merely correlated, not causally connected.

And most of the money/happiness researchers acknowledge that their conclusions can almost always be explained in other ways. In fact, the authors of the new study posit an alternate explanation for their findings: It may be that less money doesn’t cause more sadness, but that more sadness causes less money.

That is, they write, “people who are predisposed to feel sad may… be less likely to maintain the effort necessary to find a better paying job.”

3. You can control the impact of money on your happiness.

As noted above, for every study about the relationship between money and happiness, another identifies exceptions to the rule. Some even show that many super-rich people—23% of them, according to one survey—are overwhelmed by constant financial stress (not to mention even wilder anxieties that members of the middle class might have trouble imagining).

The takeaway? Just focus on simple strategies for getting the most happiness out of the money you already have. Some insights you should consider:

  • Studies show you’ll get more contentment from putting cash toward experiences (like vacations) than material things (like a new TV).
  • Spending on other people actually generates more happiness than splurging on yourself.
  • Likewise, budgeting time to build social connections is a smarter happiness “investment” than making and spending money, research suggests.
  • Lending out possessions can help you enjoy them more once you get them back.
  • It’s best not to focus on money too much. While making more of it might have obvious benefits, obsessing over it stops you from savoring many important aspects of your life.

Read more about money and happiness:

MONEY Sports

Super Bowl Bets Could Total $4 Billion

Initial point spreads that favored the Seattle Seahawks has led to heavy wagering on Tom Brady and the New England Patriots.

MONEY Airlines

Airlines Drop Fuel Surcharges, but Flights Don’t Get Cheaper

A Boeing Co. 737 aircraft operated by Qantas Airways Ltd. flies past the air traffic control tower as it lands at Sydney Airport in Sydney, Australia
A Boeing Co. 737 aircraft operated by Qantas Airways Ltd. flies past the air traffic control tower as it lands at Sydney Airport in Sydney, Australia Brendon Thorne—Bloomberg via Getty Images

Two airlines recently removed those annoying fuel surcharges that have been tacked onto passenger tickets for years. So that means airfare is less expensive, right? Nope.

The idea of a fuel surcharge is pretty simple: When the cost of fuel is abnormally high, instead of simply raising prices, a special, supposedly temporary fee is passed along to customers. When fuel costs retreat back to “normal” levels, logic dictates that the surcharge would disappear.

It’s this kind of wholly logical thinking that has had airline travelers up in arms over the last several months, as the price of gasoline and rocket fuel has declined substantially, yet fuel surcharges remain and airfares are still extraordinarily high. Consumer advocacy groups Travelers United and FlyersRights.org recently sent letters to airline CEOs voicing their outrage and demanding that airfares be lowered “in light of the 50% reduction in jet fuel prices since June, 2014.”

“Common sense says prices should drop when the biggest cost factor in flying nosedives,” Charlie Leocha, chairman of Travelers United, said via press release. “This isn’t rocket science. Though economists can make lots of excuses, if there were more competition, consumers would be seeing lower costs to fly.”

At first glance, it appears as if some of this madness is coming to an end Down Under. As the Sydney Morning Herald put it, Virgin Australia recently announced it was removing “consumer-reviled references to fuel surcharge” from its tickets. This surcharge added as much as AUD$680 (US$540) to the cost of an international round trip. Qantas, which competes with Virgin Australia on many routes, including flights between the U.S. and Australia, followed suit by saying that it too would get rid of fuel surcharges on tickets.

To which travelers might reasonably respond: Hallelujah!

Not so fast. The removal of these hated, astronomically expensive fees is having little to no impact on the actual cost of airfare paid by travelers. For the most part, the airlines are simply incorporating fuel charges into base airfare prices, and the amount paid out of pocket by passengers will remain stubbornly high.

Virgin America said that coach passengers can expect to see a decrease of perhaps AUD$40 (a measly $32 in U.S. currency) on tickets between the U.S. and Australia. Mind you, the old surcharge hit passengers to the tune of AUD$680 (US$540). As for Qantas, its airfares will remain exactly the same even as fuel surcharges disappear.

In other words, the carriers are jacking up flight prices to compensate for the “removal” of fuel surcharges. They’re giving travelers a price break with one hand while taking more money away from customers with the other. The net result is that passengers are paying pretty much the same for the cost of transportation before the changes were announced. The only thing that’s changed is how the airlines break down the flight costs.

To airline passengers, who want their total out-of-pocket costs to drop, and who couldn’t care less about how the airlines categorize each component of a flight’s price, these “changes” mean that nothing at all has really changed.

MONEY groceries

National High-Price Bacon Nightmare Is Over

150127_EM_Bacon
Ray Lego—Getty Images

Bacon lovers, rejoice. The heartbreaking, seemingly endless rise of pork prices appears to have subsided.

After hitting record highs over the summer, bacon prices have come down to earth—and even cheaper prices are on the way.

The retail price of bacon hit an all-time high during the summer of 2014, but has since retreated, dropping 5.7% by early December, according to Bloomberg News. What’s more, all signs indicated at the time that prices for pork, ham, and bacon would keep on decreasing. “Hogs and pork are almost surely going to be cheaper, particularly compared to beef, next year,” Doane Advisory Services economist Dan Vaught said.

Sure enough, pork prices are plunging in early 2015. On Tuesday, the Wall Street Journal reported that farmers have rebounded from a virus that decimated pig herds in 2013 and early 2014, and that the nation is riding high on the hog in terms of a record number of pigs approaching slaughter weight. Forecasts call for an all-time high of 23.9 billion pounds of pork to be produced in the U.S. in 2015.

“It’s amazing. We’ve gone from ‘We’re going to run out of pork!’ to ‘What are we going to do with all of this meat?’” John Nalivka, president of the Oregon-based agriculture-advisory firm Sterling Marketing Inc., told the Journal.

Well, one thing they’re clearly going to do is cut prices. Hogs are currently trading at four-year lows on the futures market. Supermarkets are paying less for pork wholesale, and they have begun passing along the savings in the form of cheaper ham, pork loins, and yes, bacon. Last summer, the average retail price for a pound of bacon was over $6 per pound. By December 2014, according to the Bureau of Labor Statistics, a pound of bacon was averaging $5.53 in U.S. grocery stores, and $5.10 in the Midwest.

The funny thing about bacon is that people love it so much that demand stays incredibly high even when prices rise, and the masses are prone to panic with the slightest hint of bacon being in short supply. And when bacon prices become cheaper, that’s a justification for some bacon lovers to take their bacon consumption to the next level. Businesses that profit on bacon-aholics will surely be more than happy to help. Look for more bacon to be incorporated into restaurant menus and on sale at supermarkets in the months ahead.

MONEY financial advice

The Wonderful Thing That Happens When a Financial Adviser Tells You the Truth

A tale of youthful stupidity holds the key to giving honest, genuine financial advice.

I was an 18-year-old punk with a monumental chip on my shoulder. You know, the kind of kid certain of his indestructability, sure of his immunity from the dangers of self-destructive behavior.

At 2:00 a.m. on a random Wednesday morning in June 1994, after a long day and night of double-ended candle-burning, I set out for home in my Plymouth Horizon. At the time, my car was bedecked with stickers loudly displaying the names of late-60s rock bands. No shoes, no seatbelt, no problem.

Not even halfway home, I was awakened by the sound of rumble strips, just in time to fully experience my car leaving the road and careening over an embankment. After rolling down the hill, the vehicle settled on its wheels and I, surprisingly, landed in the driver’s seat. But all was not well.

Broken glass. My right leg was visibly fractured. I had hit the passenger seat so hard that it was dislodged from its mooring. Blood dripped on my white T-shirt.

I was well steeped in the Die Hard and Lethal Weapon series, so I knew what was coming next — an explosion. Naturally, I busied myself with the task of escaping a fiery death.

The driver’s side door wouldn’t open, so I climbed across the center console with its five-speed stick shift. I’d later learn I had a broken femur. And a broken pelvis. The passenger door was also inoperable, so I crawled into the back seat, now really beginning to feel the pain. Neither of those doors would open. Metal had rolled down over the doors.

I gave up, right then, right there.

Four hours later, shortly after sunrise, a truck driver spotted the car. Soon thereafter, I was being shuttled into a helicopter headed for the R Adams Cowley Shock Trauma Center at the University of Maryland Medical Center. The last thing I remember hearing was, “This doesn’t look good. I don’t think this kid’s gonna make it.”

That initial prognosis almost proved accurate. At the hospital, my left lung collapsed. Uncooperative even when unconscious, I fought the breathing machines. The medical staff induced a coma, where I remained for five days. My parents were told that my chances of living had fallen below 10%.

Family and close friends were notified.

Obviously, I made it. But I suffered immensely with how to knit this incident into my life’s narrative. This wasn’t just some random, tragic occurrence. It was a natural outcome of poor decisions. I couldn’t reconcile why I’d been spared — a punk kid who didn’t care about anyone but himself.

I spurned physical therapy. I didn’t submit to psychological analysis for more than 12 years, until, after a series of panic attacks, I was diagnosed with symptoms of PTSD. There was simply no ignoring or escaping the shame of the most embarrassing event in my life.

But that chapter had to become part of my story.

I began working in the financial industry long before I learned to welcome this reconciliation, and I found myself right at home. Everyone seemed to be in the business of pretending. And it seemed to touch on everything.

How to dress, what car to drive, where to go to the gym. I was even taught how to answer the question, “So, how are you doing?” I couldn’t be entirely honest, of course.

I was just scraping by, in relative poverty, trying to convince the well-off to rely on me for financial advice. So, to salve my conscience, my sales manager had instructed me how to respond to that most common of questions in a way that was, as all the best lies are, partially true: “I’m doing…unbelievable!” Indeed.

I thought to myself: If I appear smart enough, educated enough, credentialed enough, experienced enough, then they will trust me. Believe me. (Pay me.)

Unfortunately, while the financial industry has built its case to the collective client by projecting a façade of impenetrable eminence, it has ignored the opportunity to build trust the way its built best. By being who we are. By being something most financial advisors are taught to never be — vulnerable.

“Vulnerability sounds like truth and feels like courage,” writes Brené Brown in her book, Daring Greatly. (If you haven’t seen her inspiring TEDxHouston talk, “The Power of Vulnerability,” treat yourself and join the 18 million souls who have.)

Perhaps the financial industry could exhibit more truth, financial regulators more courage, and advisers more vulnerability?

One financial adviser put vulnerability to the test on the biggest stage possible.

Carl Richards, one of my friends and colleagues, had reached every outward milestone of success. He was running a thriving independent advisory firm, writing for The New York Times, and working on his first book. But he knew there was a piece of him — a big piece — that he hadn’t yet reconciled with his personal story.

So he did the previously unthinkable. This financial adviser shared the story of his biggest financial mistake. In the Times.

What happened next was both fascinating and frightening. Richards, who wrote about losing his over-mortgaged house when the housing bubble burst, was strongly supported by some people in the financial world. Others, however, decried Richards as a professional heretic. Some even called for his credentials to be stripped. How dare he acknowledge financial fault and crack the public’s perception of our profession as perfect?

That stung, but the broader impact of Richards’ authenticity was remarkable. I asked him recently, “Now, three years since publishing your biggest financial mistake for the world to see, how much of an impact has that step in vulnerability had on your work and life?”

“A massive impact,” Carl said. “The surprising side effect has been what I’ve learned about the vulnerability of the human condition. None of us are immune. People have been willing to share with me because I’ve shared with them.”

My experience has been similar. The degree to which I’ve been willing to reconcile my worst moments with those I’d prefer that others see, the more I’ve been able to facilitate genuine relationships — genuine trust — with family, friends, clients and co-workers.

Of course I’m not suggesting that financial advisers should rely solely on anecdotal authenticity. Education, experience, credentials, a fiduciary ethic, and practicing what we preach are imperative. But they are a starting point. As Brown implores, “What we know matters, but who we are matters more.”

And who knows, vulnerability may even offer a competitive advantage as an adviser. While everyone else is trying to appear perfect, you can just be you.

———-

Financial planner, speaker, and author Tim Maurer, is a wealth adviser at Buckingham Asset Management and the director of personal finance for the BAM Alliance. A certified financial planner practitioner working with individuals, families and organizations, he also educates at private events and via TV, radio, print, and online media. “Personal finance is more personal than it is finance” is the central theme that drives his writing and speaking.

MONEY The Economy

Northeast Braces for ‘Historic’ Blizzard

New York City is preparing for a big winter storm that has already resulted in 4,000 flight cancellations.

MONEY Sports

Super Bowl Ticket Prices Are Not Deflated Anymore

Football hot air balloon
Shutterstock

During the week that Deflategate dominated Super Bowl media coverage, ticket prices for the game took off like a perfectly thrown deep-route touchdown pass.

For the first couple of days after football fans found out the Super Bowl would feature a matchup of the New England Patriots and the Seattle Seahawks, ticket prices for the game remained cheap (relatively speaking). As of Tuesday of last week, the “cheap seats” were selling for a little under $2,000. That’s less than the price of tickets before we knew who was playing in the big game this year, and it’s also fairly inexpensive by Super Bowl standards.

What’s more, because of patterns established in previous Super Bowls—asking prices tend to drop as game day nears—many experts recommended at the time that fans wait for ticket prices to fall further before buying. Because the Seahawks just won the Super Bowl a year ago, and because the Patriots have been in five Super Bowls during the Brady-Belichick era, the theory was that fan “fatigue” would cause an especially large dip in the ticket market this year.

Right about now, however, those theories appear to be dead wrong. Instead of dropping or remaining flat, Super Bowl tickets have skyrocketed during the week or so when legions of sports fans were distracted by Deflategate, the scandal in which the Patriots are being accused of using underinflated footballs during the AFC Championship game against the Indianapolis Colts.

On Saturday, the Seattle Times estimated it would cost a minimum of $9,000 for a pair of fans to attend the Super Bowl, with the lion’s share needed for admission (over $3,000 apiece for tickets). As of Sunday, data from secondary market ticket sale sites such as TiqIQ showed that the cheapest tickets available were starting at roughly $4,200, and that the average list price for seats was running a whopping $6,459—a 114% increase compared to the same time period before last year’s Super Bowl. Another ticket resale site, SeatGeek, reports that the average Super Bowl seat sale price on Sunday was $4,573, up 63% in one week.

TiqIQ’s Chris Matcovich, who was one of many insiders who went on record a week ago telling fans that they should wait for ticket prices to drop, has circulated to the media an explanation for why prices have hit the roof, and apparently it has nothing to do with the Deflategate controversy. “The main reason for the rise was brokers were short selling early on, on the bet that based on previous years prices tend to decline after the championship Sunday,” he explained. “Demand ended up being higher than expected and that led to prices rising.”

As of Monday, Super Bowl ticket prices at resale sites like StubHub, TiqIQ, and VividSeats were all listing seats starting under $4,000—and a few were just a smidge over $3,000.

That’s pricey compared to a week ago, but perhaps better than the options fans encountered over the weekend. So what’s the strategy now? Is it better to buy or wait a few days? Or wait until the very last minute? The consensus about the trajectory of ticket prices has already been wrong once for this year’s Super Bowl, so we’re not going to pretend to know where prices will go from here.

MONEY Bitcoin

First U.S. Bitcoin Exchange Goes Live

The debut of the Coinbase exchange caused a spike in Bitcoin’s value, from around $250 apiece to more than $300.

MONEY ridesharing

Uber and Lyft Cap ‘Surge Pricing’ During East Coast Storm

A pink mustache on the dashboard as Bouchaib El Hassani, 31, a Lyft driver, makes his way through midtown.
A pink mustache on the dashboard as Bouchaib El Hassani, 31, a Lyft driver, makes his way through midtown. Bryan Smith—ZUMA Wire/Alamy

Uber won't charge more than 2.8x the normal rates; Lyft will top out at 3x a normal fare.

Worried about getting around during the impending East Coast blizzard? Don’t rule out calling an Uber.

On Monday, ridesharing services Uber and Lyft announced they would be capping their “surge” prices for the coming storm. Lyft will limit prices to three times the normal fare, while Uber will cap prices at 2.8 times the normal rate.

Both companies use demand-based pricing to increase fares when there aren’t enough cars on the road to field requests in a timely fashion. While critics have at times referred to this tactic price gouging, Uber and Lyft defend the practice, saying it encourages drivers to work during the busiest hours—or, as an economist might put it, helps supply keep up with demand.

Lyft has maintained a 200% cap on fares ever since the company launched Prime Time pricing, its version of demand pricing, last year. The one exception was New Years Eve, when the company increased the cap to 400%. Prime Time adds a certain percentage to the overall fare, meaning a 200% Prime Time rate is equivalent to triple the cost of normal ride. On Monday, Lyft sent out an email to New York customers reminding them of the cap and urging both drivers and riders to be safe during the blizzard.

Uber generally does not cap its surge pricing, but after high fares during Hurricane Sandy provoked an outpouring of criticism, the company reached an agreement with New York attorney general Eric Schneiderman to limit demand pricing during “abnormal disruptions of the market” such as emergencies and natural disasters. Uber has since expanded this policy nationwide, and further promised to donate 20% of elevated fares to the Red Cross during times when surge pricing is capped.

Unlike Lyft, Uber does not have a flat cap on its demand pricing. Instead, according to Schneiderman, the cap is “limited to the normal range of prices [Uber] charged in the preceding sixty days. In addition, it will further limit the allowable range of prices by excluding from the cap the three highest prices charged on different days during that period

In an email to users on Monday afternoon, Uber clarified that “prices would not exceed 2.8x the normal fare rate” due to the State of Emergency declared in New York. The company also said all “proceeds” will be donated to the American Red Cross.

In a Monday press conference, New York City Mayor Bill de Blasio appeared to call into question Uber’s agreement with Attorney General Schneiderman when he urged New Yorkers to report any service that raises prices during the storm.

“If you have any evidence—if you happen to take, for example, for-hire vehicles or have any evidence of people taking advantage of this emergency to unfairly and illegally raise the prices of their rides, it is important to call 311 and report it,” said Blasio. “Price gouging in the context of emergency is illegal.” It is unclear if de Blasio was including Uber and Lyft in his definition of “for-hire vehicles.”

The utility of ridesharing services during the weather emergency may also be in doubt for New York City residents. Mayor de Blasio has said all streets will be closed to non-emergency vehicles after 11 p.m. Monday night.

Correction: The original version of this article misstated the Lyft demand pricing plan. Because Prime Time pricing adds a percentage to the overall fare, a 200% cap limits rates to three times the cost of a normal ride.

MONEY Travel

5 Strategies for Dealing With Your Flight Cancellation

Travelers make their way through security lines at Denver International Airport, November 27, 2013.
RJ Sangosti—Denver Post via Getty Images

With storms threatening to put your travel plans on ice, don't head to the airport unprepared. Instead, go on the defensive with these moves.

With more than 5,000 flights already cancelled ahead of the big winter storm set to blanket the Northeast this week, travelers may want to prepare for a rough time at the airport.

Though cancellations have been light so far this month compared with January 2014, when 3.5 million people were grounded because of called-off flights, the worst may be yet to come, as the blizzard is expected to hit hard in major transportation hubs like New York City. American and United have both announced plans to suspend all flights on Tuesday in New York, Philadelphia, and Boston. All major carriers have already announced that they will waive change fees for storm-canceled flights.

Airlines are relatively quick to cancel domestic flights, says Tulinda Larsen, president of airline operations analysis firm masFlight. According to a masFlight data, a domestic cancellation costs the airline an average of $6,000, versus as much as $40,000 for an international route.

Even once operations resume on Wednesday, travel headaches are likely to persist. Here are 5 tips to help get you to your destination as quickly as possible, sanity intact.

1. Check in early

If your flight has been rescheduled, don’t relax just yet: In bad weather, oversold flights can be more of a problem, as stranded passengers buy up any open seats.

Your best defense against getting bumped? Checking in online as close to 24 hours ahead of time as possible, according to TripAdvisor travel advocate Wendy Perrin. Not only will you be less likely to lose your seat, but you will also have the best shot at choosing a good one.

2. Stay informed in real-time

Those facing a called-off flight shouldn’t just let the airline automatically rebook. First, check out FlightStats.com, which shows delayed and canceled flights all across the country. There may be a different itinerary that’s a better fit for your schedule.

3. Know your options

Each airline has its own policies when it comes to weather-related cancellations and delays; there are no federal requirements. Still, in the event of a delay, some airlines will pay for meals or other amenities, so it’s worth asking (more on that below). If your flight is cancelled, the carrier may be willing to put you on a flight with a different airline, so check out those options too.

4. Photograph your valuables

Losing expensive belongings is always upsetting, but tack on a crazy snowstorm and chaotic airport and you have the formula for a nervous breakdown. Be prepared for the worst by keeping receipts for, and snapshots of, anything pricey in your luggage. Airlines are legally obligated to reimburse up to $3,300 for your lost possessions.

5. Turn on the charm

Whether you’re dealing with lost luggage, delays, a cancelled flight, or any other travel nightmare, it’s important to be as polite as possible when making a complaint. “Take a deep breath. Remember that despite everything that has happened, you are still alive and, in fact, breathing. Then come talk to me and explain your situation,” writes flight attendant Cary Trey at ThePointsGuy.com.

Going a step beyond politeness and being extra kind to the person you’re dealing with—who, let’s face it, has probably been having a pretty bad day, too—can’t hurt. Trey suggests carrying mini-boxes of chocolates to show gratitude to those who go the extra mile to help you out.

If that sounds like a bit much, even a simple, “Thank you so much for your help!” will be enough make you stand out from the grumbling masses.

 

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser