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Two Principles of Psychological Wealth, part 1

Sunday, February 28th, 2010
  • “I’d really be happy if I could just get that promotion.”
  • “I can’t wait for my vacation!”
  • “I wish I had just a little more money so I could make ends meet.”
  • “I’d be glad if I could lose 10 pounds.”
  • “I want those shoes!”
  • “I should move to California.”
  • “Thank God it’s Friday.”

When people think about what they want, it often has to do with improving their circumstances. People assume they’ll be happier if they could have a situation that includes things like the ones listed above.

I’m pretty sure Ed Diener ( “Dr. Happiness” ) has done more scientific research on happiness than anyone, and is considered by many the world’s foremost authority. Recently he wrote a book on the subject with his son, Robert Biswas-Diener ( “The Indiana Jones of Positive Psychology” ), who has also done some interesting research on happiness all over the world. If you want to be happier, it might make sense to listen to what they have to say.

The book is called Happiness: Unlocking the Mysteries of Psychological Wealth.

Part 1 (of 4 parts), “Understanding True Wealth,” includes Chapter 2: “Two Principles of Psychological Wealth.” The excerpts below are from their discussion of the first principle.

Caveat Emptor: Bad Stuff Happens … Even to Princesses

Take a moment and recall the classic story of Cinderella. Remember how she was cruelly mistreated by her stepsisters and their wicked mother? Do you recall how they made her slave away at the daily household chores? Remember how the dress she labored so hard over was torn to shreds in a fit of jealousy, and her hopes of going to the royal ball lay in tatters? Of course, you probably best remember the happy ending of the fairy tale: Cinderella’s magical godmother arrives in the nick of time, whisks her away to the dance, and engineers a quick infatuation, with the result that the beloved protagonist marries the charming prince. But is that the end of the story, or just the beginning?

It is interesting to consider what happened to Cinderella next, after she was betrothed and took up residence in Charming Castle. For people who believe that happiness is a matter of favorable circumstances, the story of Cinderella turns out to be a slam dunk. With a Hollywood-handsome husband, a royal title, all the riches she could want, and soldiers to guard her from the paparazzi, how could our belle of the ball not be happy? But for folks who are inclined to think of happiness as a process, the matter of Cinderella’s emotional fate is far from clear. Did Cinderella’s husband treat her well, or was he a philanderer in later life? Did she find some meaningful pastime to keep her occupied on the palace grounds? Were her children spoiled brats? Did she harbor resentment about her upbringing, or try to get revenge on her stepsisters? Did she grow bored with royal balls and court intrigue, or did she organize a dance program for the poor kids in her kingdom? Happiness, as we have said, is a process, not a destination. Just as Cinderella’s life did not end with her royal wedding, your emotional bliss is not complete once you have obtained some important goal. Life goes on, and even those great circumstances you achieve will not ensure you lasting happiness. For one thing, bad things can happen even to beautiful young princesses. But even if Cinderella’s life encountered few bumps on the fairyland road, she might have grown bored with the wonderful circumstances surrounding her, and needed new aims and activities to add zest to her life.

In the end, Cinderella’s quality of life was probably dictated less by her favorable circumstances and more by how she construed them. Hardships are an inevitable part of life, and having psychological wealth does not mean there are never any risks or losses. Of course there are. Happiness is not the complete absence of tough times, because that would be unrealistic. But, as we shall see later in this chapter and later in this book, negative emotions have a place in psychological wealth, and subjective interpretation plays an important role in happiness.

-Diener and Biswas-Diener, Happiness, pp. 16-17
(Chapter 2: Two Principles of Psychological Wealth)

Cinderella seemed to end up with a lot of the things we want (and don’t we spend a lot of time trying to get them?): money, prestige, a good-looking romantic partner, security. She was “successful”; she had “arrived.” But research on happiness is showing that good circumstances (even those of storybook quality) don’t necessarily have a lot to do with how happy people are. Of course, goals are important, but happiness is more about the process than it is about where you end up.

The next section in the book, a kind of thought experiment, illustrates this nicely.

Needing the Rigors of the Game

We sometimes ask our students whether they would accept the following pact with a genie. After floating out of his lamp, he offers to give you everything you desire, and as soon as the wish comes into your head, without the typical three-wish limit. The smirking genie says that anything you want will instantly come to you. You can’t wish for happiness, and you can’t wish that you will need to work for things to obtain them: no trickery of this type is allowed. Just solid old-school wishing for gold, castles, travel, beauty, friends, sports talent, intelligence, musical talent, good-looking dates, fast cars, and the like is permitted. Of course, most students wave their hands wildly, signaling that of course they would accept this great offer. Undoubtedly they are thinking of school loans, good grades, summers in Paris, and body fat. But – typically – as the class discussion proceeds, doubts begin to creep in. Maybe this all-wishes-granted deal, having everything and working for nothing, would become boring. Maybe you would adapt to all your blessings and they would no longer produce happiness. The discussion proceeds a bit further, and a few students begin to think the infinite-wishes deal might be hell on earth. Things would become boring, they reason, and life would lose its zest.

Students’ qualms about receiving everything without effort express our intuitive understanding that working for things we desire can be part of the pleasure of obtaining them. Just as climbing the mountain may be the major part of the fun, and simply being boosted to the top by a genie would be much less rewarding, much in life might be more meaningful and rewarding because of the efforts needed to obtain it. Not only will the eventual reward be more exciting, but the activities needed to gain the reward can themselves be very rewarding. The former justice of the United States Supreme Court Benjamin Cardozo expressed this well: “In the end the great truth will have been learned: that the quest is greater than what is sought, the effort finer than the prize (or, rather, that the effort is the prize), the victory cheap and hollow were it not for the rigor of the game.” The renowned justice went beyond saying that the goal-seeking activities enhance the final reward; he claimed that these activities are in fact the prize itself!

-Diener and Biswas-Diener, Happiness, pp. 17-18
(Chapter 2: Two Principles of Psychological Wealth)

You’ve probably heard the saying “Life’s a journey, not a destination.” The quotation is from Ralph Waldo Emerson, but it was also popularized by Aerosmith. If you do a Google search for “journey, not a destination” you’ll get a lot of interesting variations – other things that are “…a journey, not a destination”:

    Popular book by top happiness researcher

  • Success
  • Excellence
  • Fitness
  • Leadership
  • Sustainability
  • SEO (Search Engine Optimization)
  • CRM (Customer Relationship Management)
  • Windows Vista Security

But the most popular variation that comes up in the first few pages of Google is:

“Happiness is a journey, not a destination.”

This is also the essence of the first principle of Psychological Wealth.

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Can money buy happiness?

Tuesday, December 23rd, 2008

Researchers find that it can – if you spend it on other people.

In the last few decades real incomes and real wealth have increased much more than people think, but people are no happier, according to research. Gregg Easterbrook wrote a book about this, The Progress Paradox: How Life Gets Better While People Feel Worse, which prompted Martin Seligman to invite him as a guest lecturer in an online course I was part of.

Elizabeth Dunn, a psychologist at the University of British Columbia, thought this might be because of the way people spend their money. “People often pour their increased wealth into pursuits that provide little in the way of lasting happiness.” They do things like buying flat screen TVs. Research has found over and over that you get a little jolt of pleasure from this, but it goes away pretty quickly. It turns out giving has more benefits. Also, just thinking about having more money makes people less likely to use it in ways that would make them happy (Vohs et al, 2006). And when a group similar to those in the third study below were asked to select the conditions in that study that would make them happier, they got it exactly backwards.

We’re actually not very good in general at predicting what will make us happy. One Harvard psychologist has devoted a lot of his research career to this. His engaging and witty best-seller is called Stumbling on Happiness, which I’ll definitely be talking about in a future post.

giftGetting back to Dunn and colleagues, who published their findings in March this year in Science, their research looked at this question in different ways by doing three separate studies. They concluded that buying stuff for yourself doesn’t make you happier, but spending money on other people does.

They surveyed 632 Americans, gave them standardized, validated measures of general happiness, and asked questions about income, spending on (1) bills and expenses, (2) gifts for themselves, (3) gifts for others, and (4) donations to charity. Spending on the first two categories was not related to happiness; spending on the second two categories was.

Next they looked at people who received a windfall profit-sharing bonus (mostly in the $3000-$7000 range), and how they spent it. General happiness measures were taken a month before and 6-8 weeks after. They reported what percentage of their bonus they spent on 6 different categories including “buying something for someone else” and “donating to charity.” High or low income didn’t affect the happiness measure, and the amount of the bonus didn’t either. But spending in the two “pro-social” categories I just mentioned predicted higher levels of happiness. How much people got wasn’t related to their happiness two months later. Spending it on others was.

A third study was an experiment which could demonstrate causality. Participants were given either $5 or $20 to spend by 5:00 p.m. and were randomly assigned to two groups. In one group they spent the money on a bill, an expense, or a gift for themselves, and in the other group they spent the money on a gift for someone else or to make a charitable donation. Those in the latter (pro-social spending) group had increased general happiness scores.

The researchers go on to say that it might be better to focus on “intentional activities” (“practices in which people actively and effortfully choose to engage”) in finding ways to increase happiness, rather than looking at life circumstances like income, gender, and religious affiliation. They also point out that a small change in spending habits can have a significant effect. Remember that in the third study, only $5 made a difference.

5 dollar bill

References:

Elizabeth W. Dunn, Lara B. Aknin, Michael I. Norton (March 2008), “Spending Money on Others Promotes Happiness,” Science 21: Vol. 319. no. 5870, pp. 1687-1688. DOI: 10.1126/science.1150952.

Kathleen D. Vohs, Nicole L. Mead, and Miranda R. Goode (November 2006), “The Psychological Consequences of Money,” Science 314: Vol. 314. no. 5802, pp. 1154-1156. DOI: 10.1126/science.1132491.

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How to be rich and happy

Tuesday, September 30th, 2008

After the $700 billion bailout bill was rejected by the U.S. House of Representatives yesterday, the market crash was described by news organizations as the “biggest one-day drop in Dow history” (going back to 1896). This description is kind of ridiculous because it was the biggest point drop, but in percentage terms (7%), it was not one of the top 16 worst days. In fact according to a study by researchers at New York University and Boston University, a statistical analysis using a complex formula concluded that drops of 7% would be expected once every 4.3 years, but we haven’t had one for 7 years. In 1987 the market crashed almost 23% in one day, and recovered very soon afterward.

I always wondered why most TV news programs report stock market moves in point terms without including (at least in the graphic) what the number really means in percentage terms. So it’s hugely misleading to claim yesterday was the biggest drop in Dow history. Comparing the point rise or fall with historical moves up or down becomes more and more misleading the further back you go. But hidden inside this problem is a key secret to wealth.

Exponential growth (green)

Exponential growth (green)

(Here’s a mouthful): Any growth that’s proportional to current value is going to be exponential. In other words, if you keep adding a fixed percentage (like 10%), something will grow faster and faster. The growth curve bends upward. Albert Einstein is supposed to have said that the most powerful force in the universe (or the greatest invention in human history) is compound interest.

Add 10% the first year to $100 and you’re adding just $10. But keep going and your money doubles in about 7 years. Then if you have $200 and it grows by 10% that year, you’ve gained $20. Then $400 ($40), $800 ($80)…. and that’s without putting in any additional money.

“The important thing is to find wet snow and a really long hill.”

-Warren Buffett

Something else happened yesterday. An unprecedented full biography was published about the life of Warren Buffett, the second richest man in the world and the most successful investor of all time. It’s named The Snowball. When you find a successful method for something in life, let it snowball. This applies to a lot of things, including investing.

People who put this magic to work for them get richer and richer. People who let this work against them are going the wrong way on the escalator.

A good example of this working against you is credit card debt. If you’re paying 20% on credit card debt because you didn’t pay off the full balance, you’re building wealth – but unfortunately for someone else, not for yourself.

You want to have some of your money working for you. Then it becomes a money factory.

Credit card interest is the exact opposite. It’s a money toilet. FLUSH!

If you’re making more than you spend and can invest, some of your money is going to be just like little elves laboring away while you sleep. If you’re spending more than you make, and have to borrow, more and more of your money is going to have a panoramic 360 degree view of white porcelain.

There are exceptions to “don’t borrow” of course, like debt that invests in yourself (education), or an “appreciating asset” (a house you plan to live in for at least 5 or 10 years), or even a temporary need.

Some things don’t fall into the category of “needs” – those cute shoes you saw in the store window, that cool car, that sweet electronic entertainment device or other gleaming gizmo. Besides, research shows that acquiring things only gives you a very temporary pleasure boost that doesn’t last. (Research has found that spending your money in other ways can make you happier for longer periods; more on that in a future post.)

“But I don’t have any extra money! Where am I supposed to get money to save and invest?”

In The Automatic Millionaire, David Bach advises that you have to find your “Latte factor”: What do you habitually spend money on that you could easily buy less of, but you don’t give a second thought because it’s only a small amount each time? (going out for lunch every day, soda, snacks, candy, cigarettes) A recent college graduate who finds $5 a day like this can save almost $2000 a year, invested for retirement growing at 10% becomes…drum roll…nearly $1.2 million! If an employer provides 401k matching funds of 50%, it becomes $1.74 million. Pretty expensive coffee!

Looking at it like this helps people to reevaluate those small expenses that they thought didn’t matter. They’re seeing that it’s much better and more secure to save and grow their money. Bach’s book is a basic introduction to building wealth, well-written and very easy to read, presenting a simple and practical approach that works even for people who have no previous financial knowledge. I actually bought 4 copies for family and friends a few years ago when it came out.

Here’s the bad news: Money can’t buy happiness. (Okay, you knew that already.) On the other hand, it seems like a lot of people who know this still spend a disproportionate amount of their time focused on earning money, sacrificing other things in the process. Money can be a big factor in happiness or “life satisfaction” if your struggling to satisfy basic survival needs like food and shelter. Once you get beyond this threshold, however, most research shows that increases in income are only associated with small increases in happiness (depending on how it’s defined). So money has the potential to buy you a certain kind of freedom if handled well, and there are ways to use money that increase happiness, but a lot of people neglect other things – relationships, meaningful activities, positive experiences….

If you think about it, you can use this same snowball formula not just for money but in other areas of your life too. Do what works, and then do more of it. Of course we can all learn new things from science, but you already know a lot about what works for you in various relationships, exercise and health, emotional regulation, attitude, perspective, career/vocation/calling, sense of your contribution, and what you really value in life. Analyze your successes in these and other important areas, and put more attention and effort into those successful approaches. Build on your strengths. You can be rich in more ways than just financial.

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