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Living in Retirement

The Economics of Happiness

Society and the media lead us to believe that having lots of money and material things is the ticket to happiness.  Recent research suggests otherwise.  Let’s look at money as an example.  

Since Elvis made his first appearance on the Ed Sullivan show in 1956, the average American’s disposable income (in 2000 dollars) has tripled from $9,431 to $27,792, according to data from the Bureau of Economic Analysis.  However, as reported in the book “Happiness” by Richard Layard, our level of happiness hasn’t increased at all during that time.  

Money does factor into the happiness equation but only to a certain degree.  Studies have shown that if we go from making $20,000 per year to $50,000 per year, our happiness will just about double, according to Harvard professor Dan Gilbert.  However, going from $50,000 to $90,000 will only yield a slight increase.    

Quiz time.  Which would you prefer; getting paid $50,000 per year while other people get paid $25,000 or getting paid $100,000 per year while others get paid $250,000?  According to one survey, more people preferred the first option.  

Happiness from money is relative.  As long as we make more than our “comparison” group, money makes us happy.  It turns out happiness is partially based on “staying ahead of the Joneses.” 
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Even our young people are money focused.  The latest UCLA annual survey of college freshmen indicated that nearly 75% of them said it was essential or very important to be “very well-off financially.” 
That’s up from 42 percent in 1966, the study’s first year.  

Don’t get me wrong.  Money per se is not bad.  It’s what we do with it t
hat counts.  

It’s a similar story with material goods.  Just as a shiny new coin dulls with use, so does our happiness with the goods and services increased wealth can buy.  Over time, we become used to our new standard of living and our happiness level flat lines.  Continually buying bigger and better things may just lead to what researchers call the “hedonistic treadmill.”

Okay, so if becoming a millionaire is not the passport to happiness, what is?  According to various studies, here are seven keys that can make us happier.

  • First, build strong family relationships.  We need the closeness and love of a family.  By contrast, (not surprisingly) divorce and separation are two situations that can cause the largest drop in personal happiness.
  • Second, secure an adequate financial situation.  As described above, a certain level of income is necessary for a base level of happiness.
  • Third, find rewarding and meaningful work.  A job pays the bills but finding work that makes us feel like we are contributing to society and helping others is also very important.
  • Fourth, cultivate friends and a local community.  Research from the University of Chicago's National Opinion Research Center indicates that people with five or more close friends are 50 percent more likely to describe themselves as "very happy" compared to people with fewer friends.
  • Fifth, focus on health.  We tend to ignore our health—until we don’t have it.  By proactively trying to stay in shape, we can feel better, live longer and be happier.
  • Sixth, find the “zone.” Whether it’s work or leisure, happiness ensues from being “in the zone;” that state where we are totally engaged in an activity and absorbed in the moment.  
  • Seventh, be grateful.  It’s easy to lament what we don’t have but it’s better to focus on appreciating what we do have.

Yes, life can be difficult and unfair; however, by consciously focusing on the seven items above, we can improve our odds of living the good life and experiencing happiness.