Does money buy happiness?  We all have our own answers to this commonly contemplated question, depending not only on our incomes but also on our individual histories and the meaning of money in our lives.  The question of whether money buys happiness is actually many questions at once:  How do we assess our happiness in general?  By what means do we make use of our money and how does this correlate to our sense of well-being?  What was the role of our parents’ money in our childhood experiences, and how did that imprint upon us?

In a recent study put out by the Center for Health and Well-being at Princeton University, Nobel Prize-winning psychologist Daniel Kahneman and Angus Deaton have reviewed the responses of 450,000 Americans and concluded that there is a direct correlation between money and some forms of happiness, at certain income levels.

In seeking a possible correlation between money and well-being the authors sought first to differentiate between two forms of happiness – “emotional well-being” and “life evaluation” – and then to plot income levels against these determinants.  (Emotional well-being refers to the qualify of an individual’s everyday experiences.  Life evaluation relates to the thoughts people have about their life when they think about it, i.e. “How satisfied am I with my life?”

The authors observed striking differences in the relationship of these two forms of well-being to income level.  The bottom line?  Not unexpectedly, a lack of money can exacerbate the affect of adverse circumstances (divorce; ill-health; loneliness) and interfere with ones ability to be happy.  Notably, however, beyond $75,000, higher income is neither the road to happiness nor to the relief of unhappiness.  Both varieties of happiness increase with income, but only up to $75,000.  Beyond this income level there is no improvement whatsoever in the quality of ones life (emotional well-being) while there is a marked increase in ones over-all sense of success, or life evaluation.  (In fact the authors found that the sense of general life satisfaction rises steadily with the rise of income.)

I believe these findings have much to offer us when we think about our money and whether or not it makes a difference in our lives.  For individuals below the $75,000 income threshold, it is perhaps a question of finding and using other tools which would act as a counterweight to life’s challenges and soften the affects of adverse circumstances.  These include deeper elements such as love of and from family, work contentment and spiritual connection, along with the more nuts and bolts factors such as budgeting, saving, and having the ability to prioritize needs vs. wants vs. wishes.  In essence, learning and then mastering the ability to live within ones means.

For people earning more than $75,000, the take away is interesting on several levels.  If we are to believe the results of the study, a $75,000 income (per individual) would provide the necessary means for emotional well-being while establishing that anything above this amount does not necessarily make you happier.  Indeed, there is some evidence it could make things worse.  A recent study in the Journal of Psychological Science (May 18 2010) entitled Money Giveth, Money Taketh Away provided evidence of a possible association between high income and a reduced ability to appreciate small pleasures.

Kahneman and Deaton have postulated that perhaps $75,000 is a threshed beyond which further increases to income no longer improve a persons ability to improve their emotional well being, such as spending time with people they like and enjoying leisure time.  The increased ability to “purchase” positive experiences may also be offset by some negative effects common to higher wage earners, including stress, competitiveness, time constraints, high expectations and time away from family.

The lesson for me and for my clients is simple, in concept at least:  become active in the exploration and discovery of what contributes to your well-being (both the simple and the profound) and then look for the connections that your money has to these things.  I have worked with many clients who at one time or another experienced blocks in deploying their money towards enjoyable experiences that would have impacted upon their well-being.  There is no easy explanation for these blocks, but through a bit of effort and planning they can be discovered, and conquered.

Money may not buy happiness entirely, but the money each of us has does have the potential to provide sustained well-being.  The more planning and intent we apply to how we use our money and how that impacts upon our daily lives, the “happier” we will be.  It is an effort worth undertaking.

Say the word “financial advisor” and take note of the images that appear in your mind:  stockbroker in a skyscraper?  Salesperson behind a desk?  Insurance agent with a coat and tie?  The person who does your taxes?  Someone who sold you a mutual fund?  Perhaps an actor in a television commercial?

Our notions about financial professionals are generally based on the personal experiences we have had with them.  For this reason, one of the first things that I ask of prospective new clients is to share with me the experiences they have had with past advisors.  What this usually leads to is an opportunity to differentiate the types of financial advisors populating the industry, while also providing a chance for clients to express their ideas about the kind of advisor they would like to work with.

Although Registered Investment Advisors (of which I am one) and Registered Representatives of large brokerage firms (which I used to be) are heavily regulated, the practice of financial planning is largely free of institutional oversight.  This is because financial planning is less about what we are and more about what we do.

In short, Registered Investment Advisors who are also financial planning professionals can differentiate themselves quite easily: we are fiduciary advisors, meaning we have an obligation to put the interests of our clients ahead of our own.  In order to appreciate this distinction, it helps to understand that employees of broker-dealer firms typically act under “suitability” guidelines, meaning their only obligation is to recommend what is suitable for the client, even if it also happens to pay them the biggest commission.

So, while there are many licensing bodies and trade organizations that financial planning professionals belong to, the lack of an actual regulatory structure which governs how we define ourselves lends itself to a sort of entrepreneurialism and branding that, as long as we are not running afoul of the Securities and Exchange commission or the National Association of Securities Dealers, is perfectly “kosher.”

This blog, of which this entry is the first, will promote topics which place our firm, Milestone Financial Advisors, within a small niche of fee-only advisors known to ourselves (and our clients) as financial life planners, AKA humanistic financial advisors, AKA holistic financial advisors.  Behind these monikers is the notion that there is more to financial planning than the nuts and bolts tools which seek to answer questions such as “When can I retire?” or, “How much is enough?” or, “How much will I have to save to send my kids (or grandkids) to college?”  Certainly, values-based planners address these issues and utilize these tools, but not before a process of exploration and discovery that seeks to understand our clients most essential life goals.  Without such knowledge, how can we possibly hope to answer these questions when the definitions of “retirement,” “security” and “wealth” and “benevolence” are so individual?

Within this niche, our professional goal is to enhance the quality of our clients lives by creating financial plans that integrate their investments with the broader elements of their lives.  We seek to create a supportive framework for helping identify and prioritize our clients most meaningful financial goals; in short, to help them place their money into alignment with their values.

We hope you will return to this blog for news, insights and information that supports all of the above.

Thanks for reading.

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