It turns out that money can buy happiness. Well, maybe not directly-but researchers were surprised when they examined data from a Gallup survey. According to a Wall Street Journal synopsis of the results:
A new analysis of Gallup World Poll data, surveying 136,000 people across 132 nations from 2005 to 2006, suggests that income is much more highly correlated to happiness (or at least a form of it) than previously thought.
Even some experts in behavioral finance were surprised:
What was interesting about the study was how universal the desire for financial success was across the world. “People in Togo and Denmark have the same idea of what a good life is, and a lot of that has to do with money and material prosperity,” Daniel Kahneman, professor emeritus of psychology and public affairs at Princeton University, told the Washington Post. “That was unexpected.”
To me, it’s not so surprising. If you work in the financial services field, you see firsthand how hard people strive to achieve financial success for themselves and their families. When they fail, they are miserable.
Warren Buffett, on the other hand, has a lot to be happy about. He has lifelong buddies (Charlie Munger), new friends (Bill Gates), influence, and financial security. Although he might be less happy if his friends and influence went away, he probably wouldn’t be miserable because he would still have financial security, Cherry Coke, and the t-bones at Gorat’s.
Source: Yahoo! News
Financial security is a much more important financial good than people give it credit for. Like most quantities, it seems to be relative. A retired executive might feel pinched or deprived at a different level of retirement income than a retired janitor, for example. This psychological insight led some clever financial service professional in the hazy past to popularize the “70% of income in retirement” rule of thumb, which is completely relative. There’s probably a paper waiting to be written on the S-curve of satisfaction with relative retirement income levels-above (and below) certain thresholds, satisfaction is probably reliably high (or low). In between, there may be a steep incline, where rising assets equate with rising happiness. At this point in the curve-where most of us are-the impact of good or bad financial advice can be huge.
Perhaps financial advisors can’t do much about the current worldwide financial malaise, but they certainly have the ability to influence and improve their clients’ finances through the encouragement of savings and the pursuit of sensible investment policies.
Posted by Mike Moody 
