THE MEGA MILLIONS drawing on Friday was worth more than $1 billion. Would you be happy if you’d been the lucky winner?
Last week, I talked about the Vanderbilts. Once the wealthiest family in America, they saw their fortune dwindle because of aggressive spending. Back in the 1890s, for example, the family spent $7 million building the Breakers, a summer home in Newport, Rhode Island. That’s the equivalent of $220 million today. When it was completed, the building itself covered a full acre. The dining room alone was 2,400 square feet. There were 33 bedrooms for servants—to take care of a family of five. It didn’t take long for financial strain to set in.
The Vanderbilts may be in a category of their own, but it’s well known that wealth can be both a blessing and a curse. Managing wealth—even if you aren’t a Vanderbilt—can be tricky. On my bookshelf are titles such as From Here to Financial Happiness, Wealth & Happiness and Happy Money. And those are just a few. The large number of titles on the topic tells us two things. First, it’s evidence that this is a real issue—that money doesn’t automatically translate into happiness.
And second, it tells us that there are no easy answers. If we spend too much—or too much on the wrong things—we may deplete our assets too quickly. Spending that’s too visible may also invite unwanted attention. Spend too little, on the other hand, and we may be unnecessarily depriving ourselves or our families. Layered on top of all this are estate tax considerations and family dynamics. It can be a challenge to successfully thread this needle.
Cornelius “Commodore” Vanderbilt had 13 children, but he left 95% of his wealth to just one of those 13. Presumably, there was some logic to this decision, but I can’t even imagine how the other 12 felt. This is an extreme case, but it illustrates how decisions around wealth can be fraught.
If you have some wealth, how can you use it to maximum advantage and avoid the kind of heartache experienced by the Vanderbilts, the du Ponts and others? Below are some thoughts.
Giving. In 2019, Jeff Bezos handed over a sizable chunk of his fortune—nearly $40 billion—when he divorced his wife, MacKenzie. What did she do next? In the years since, MacKenzie has given away nearly $10 billion to hundreds of organizations. To be sure, she’s in a different category from the rest of us. But it’s still possible to take a page from her book.
Here’s why. Elizabeth Dunn, a professor at the University of British Columbia, has studied philanthropy, and found a clear link between giving and happiness. In an experiment conducted on her campus, Dunn’s team handed out envelopes to passersby. Each contained a small amount of cash along with a note asking the recipient to spend the money by the end of that same day.
There were two groups of notes, though. For the first group, the note said the money could be spent in any way the recipient wished. The second group was instructed to either give the money to charity or to spend it on someone else.
At the end of the day, Dunn reconnected with each of the recipients and asked them to report how they were feeling after having used the money as instructed. Sure enough, those who had spent their money on others were “measurably happier.”
Of note, the amount of money had no effect on the result. The only thing that mattered was how the money was used. Dunn notes that even spending $5 on someone else was shown to have an impact. In other words, you don’t need to be a billionaire to achieve a boost in happiness from giving—far from it.
Incomparable. A frequently cited finding from the literature on money and happiness: We should spend on experiences rather than on things. Lavish $1,000 on a weekend getaway, for example, and it’s likely to provide more of a long-lasting lift than devoting that same $1,000 to a new iPhone. That research is well known, but why is this the case?
Dunn has looked at this question as well. One reason is because experiences tend to be “pro-social”—that is, they bring people together. Another explanation is more subtle: Experiences tend to be unique and thus harder to compare to those enjoyed by others. If a neighbor comes home with a great-looking new car, that provides an obvious opportunity for comparison—and for feeling bad about having an older or more modest vehicle. In other words, material things are easy to compare. But if my neighbor goes on vacation to one place and I go to another, it’s much harder to compare the two. We can each enjoy our own experiences with very little risk of comparing.
There’s a fair amount of evidence supporting the notion that comparisons detract from our happiness. Many people find it surprising, for example, that Nordic countries tend to be rated among the happiest in the world. They aren’t the wealthiest, and their weather is among the worst. What they have in their favor, though, is relatively less income inequality than in the U.S. The implication: As a driver of happiness, the amount someone earns is less important than what he earns relative to his peers.
Unless you plan to move to Finland, there isn’t a lot you can do to change your relative income. But Dunn’s research offers a good solution: Spend your money in ways that defy easy comparison to the Joneses.
Simplicity. The British royal family is sometimes referred to as “The Firm.” That, I think, has something to do with its dysfunction. The Queen, as the CEO of sorts, controls access to vast resources, including castles, jewels and extensive land holdings. The result: Instead of each focusing on their own lives, family members’ daily lives are oriented around the family’s power, position and wealth.
What does The Firm have to do with you and me? In my experience, there are two kinds of wealthy families. The first operates like the royal family. They might have a family compound, multi-generational trusts or maybe a shared family foundation. In other words, their wealth defines them—in their own eyes and certainly in the eyes of others—and it consumes much of their time and energy.
I once knew a family with an oceanfront compound. Among the homes there, one was referred to as the “big house,” while another was called the “barracks.” The hierarchy was clear.
By contrast, other wealthy families keep things simple. Children might be given a helping hand, but there are no sprawling trust structures and certainly no sprawling estates. They give to charity but not in a high-profile kind of way. To the outside world, this kind of family appears relatively normal. They focus on their vocations and their avocations rather than on their wealth.
If you’re a parent and thinking about how to structure things for your family, I would recommend this second model. It doesn’t guarantee happiness. Nothing does. But by keeping things simple and not letting wealth take on a life of its own, the results may be better for everyone. And if the Mega Millions numbers eventually come up in your favor, you’ll be well prepared.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on Twitter @AdamMGrossman and check out his earlier articles.
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I too am happiness focused. I appreciate HumbleDollar frequently referencing the theme of happiness. Others may enjoy, as I have, Dennis Prager’s radio show Happiness Hour on Friday’s at 1 Eastern, or his book “Happiness is a Serious Problem.” Any chance I get I read articles about the subject.
University of Texas marketing professor Amit Kumar has published some excellent research on experiences versus material possessions. Spending on Experiences Versus Possessions Advances More Immediate Happiness
There is also recent research showing that taking pictures to share on social media undermines the enjoyment people get from experiences. I think many of us would agree that our enjoyment is also undermined by the hoards of people who take selfies in museums and other tourist attractions.
How the Intention to Share Can Undermine Enjoyment: Photo-Taking Goals and Evaluation of Experiences
Wow, a very well written and thought provoking article Adam. Thank you!
I agree wholeheartedly with the simple approach. I wouldn’t want to have won Mega Millions precisely for that reason. Giving away the winnings thoughtfully, as I would have wanted to do, would bring all sorts of challenges. Which charities? How much? The process would become all-consuming!