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Avoiding Unhappiness

Edmund Marsh

“DOES MONEY BUY happiness?” That’s one of the questions in HumbleDollar’s Voices section. I hesitate to say that happiness is a commodity we can buy. But studies—and many people’s personal experiences—suggest a lack of money can bring on unhappiness.

A recent paper, “Financial Stress and Depression in Adults” by researchers at the University of Birmingham in England, supports this conclusion. The researchers reviewed 40 studies examining the relationship between depression and financial stress, 32 of which were conducted in high-income countries like the U.S., Japan and the U.K.

Perhaps it should come as no surprise that research has found that financial hardship—defined as difficulty affording the basic requirements of daily life—can lead to depression. A lack of money to buy food, make rent or pay for medical services could challenge anyone’s happiness.

Such a dire situation can force folks to sell assets or ask for assistance so they can purchase necessities. Lest we think this phenomenon is confined to “the other half,” remember the increasing number of adult children in the U.S. who live with their parents because they can’t afford to live independently.

The study also found that absolute income didn’t reliably predict the risk of depression. Rather, it was relative income that was a stronger indicator. Our feelings about our finances are tied to how we measure up against our neighbors, according to the research. We are happier hanging out with people who have the same amount of stuff or the same buying power that we have.

Debt is a similarly nuanced measure of the risk of depression. Two of the studies examined indicated that debt can lead to better mental well-being if it eases financial stress or assists us in attaining a coveted status. When we borrow to buy a home or business—and pass a background check of our finances—we can experience added feelings of well-being.

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Secured debt, such as a mortgage, didn’t cause stress—unless the borrower was behind on payments or if the debt exceeded 80% of the home’s value. But unsecured debt, such as an outstanding credit card balance, is a significant marker for depression.

Once again, these findings are relative. Total debt is not as reliable at predicting depression as the ratio of debt to income or debt to assets. People who go from no debt or low debt to substantial debt have a corresponding rise in their risk for depression.

On the brighter side, if we pay down our debts, our risk of depression falls. The implication: Money may not buy happiness, but it can help ward off depression if it’s used to pay off excessive debt.

Having little savings to fall back on can also produce foreboding about our financial future, according to the study. We could lower our stress by choosing not to live at the outer limit of our income or by adding more money to our emergency fund.

To answer the question posed at the start, it seems that we can’t buy happiness with a fistful of dollars or a stack of credit cards. The thrill of a new purchase is short-lived. But money spent to reduce our financial worries, such as by paying off credit card debt, may help stave off the unhappiness that can lead to depression.

Ed Marsh is a physical therapist who lives and works in a small community near Atlanta. He likes to spend time with his church, with his family and in his garden thinking about retirement. His favorite question to ask a young person is, “Are you saving for retirement?” Check out Ed’s earlier articles.

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Chazooo
Chazooo
10 days ago

Internet meme – “Easier to cry in a new Mercedes than in a secondhand Kia”, or whatever version.

David Powell
David Powell
11 days ago

What makes each of us happy (or depressed) puts the “personal” in personal finance.

“Enough” is a simple but powerful idea that puts happiness goals in your own hands, where those belong.

I finally read the paper which asserted $75k annual income was a happiness inflection point. It was flawed, not controlling for cost of living differences by region or city and not accounting for effects of inflation in a dataset which spanned enough time for that to matter.

parkslope
parkslope
11 days ago
Reply to  David Powell

Are you referring to the 2010 study by Nobel laureate Daniel Kahneman? I took another look at that study and found that regression controls were used to “predict the log of each individual’s income by the mean of log incomes in his or her congressional district, modified by personal characteristics income.” The Gallup survey of the 450,000 subjects was collected in 2008-2009, so I don’t think inflation was much of an issue. https://www.pnas.org/doi/10.1073/pnas.1011492107

Jonathan Clements
Admin
Jonathan Clements
11 days ago
Reply to  David Powell

The $75k happiness inflection point is starting to feel like a factoid that’s now so popular that it resists all attempts at revision. Not only should the number be higher today, thanks to a dozen years of inflation, but it also seems the notion of an abrupt cap is unwarranted:

https://humbledollar.com/2021/02/unhappy-results/

parkslope
parkslope
11 days ago

While this study is interesting, it is important to note a major limitation. Because this research was cross-sectional it didn’t control for the possibility that depression could cause people to perceive their financial status more negatively. This possibility is supported by the fact that people who are depressed are more likely to have a negative view of their personal circumstances.

Edmund Marsh
Edmund Marsh
11 days ago
Reply to  parkslope

Yes, that’s a good point. The researchers do discuss the possibility of actual financial problems being caused by depression, explained by social selection theory. Also, they recognize the need for studies that clarify the direction of the causal relationships. Still, I think there are some insights that help us understand some of the unhappiness that can be associated with a lack of money. Thanks for reading and commenting.

M Plate
M Plate
11 days ago

There will always be a percentage of people who are miserable regardless of their financial situation. But for me, I was definitely happier when money was plentiful.

Edmund Marsh
Edmund Marsh
11 days ago
Reply to  M Plate

I agree. More money should mean less worry. Even so, some of us find something else to cause us anxiety.

R Quinn
R Quinn
11 days ago

I never saw money as buying happiness, but as you conclude helping avoid stress and what goes with it. Even in retirement if I see a credit card balance growing during the month I start feeling stressed, but there is no logical reason why since it can always be paid in full at the end of the month. I can only imagine the feeling if the card can’t be paid in full.

Your point about measuring up against neighbors is so true and I am guilty. It’s not an obsession, but all my life I have had this “how am I doin” idea in my head, how do I measure up to people my age, my neighborhood? Even all these years later, how did I compared to high school friends who were off to Princeton and Harvard while I was trying to find a job?

You can have tons of money and not be happy for sure, But it is very difficult to be happy with the stress caused by insufficient money.

Seems to me though that the trick for not causing that insufficiency in many cases is not living above ones means.

Last edited 11 days ago by R Quinn
Edmund Marsh
Edmund Marsh
11 days ago
Reply to  R Quinn

Thoughtful comments, Dick. Maybe accepting our financial limitations is a common thread that leads to more happiness? It’s not always an easy task.

R Quinn
R Quinn
11 days ago
Reply to  Edmund Marsh

I’m not sure it’s possible for money to ever actually bring happiness. Any measure based on money can be wiped out in an instant by so many things beyond our control.

The best we can hope for is for money to ease one form of stress in our lives and maybe enhance our lives with some comforts and experiences, but we shouldn’t define even that as happiness.

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