AMERICANS MAY celebrate the notion of rugged individualism. But in truth, we’re social creatures. Want a better life? The more robust our network of friends and family, the happier we’re likely to be.
This is one reason spending money on experiences tends to deliver more happiness than spending on possessions. When we go on vacation, attend a concert or go out to dinner, we typically do these things with others. An added bonus: The pleasure extends beyond the experience itself. We get to anticipate these events with our companions and reminisce afterwards. We also get to regale others with stories of our adventures.
To be sure, our happiness can also be hurt by those around us. As discussed in the previous section, absolute improvements in our standard of living—whether it’s more possessions or a larger paycheck—seem to have only a fleeting impact on our happiness. But while absolute improvements don’t appear to help, it seems our happiness can be affected if we feel relatively deprived. This is a reason to live in a town where others have similar incomes and wealth—and to avoid places where our neighbors would be far richer.
Even our friends and family can unintentionally hurt our financial well-being. How so? In an effort to signal our financial success to those around us, we may overspend—which, ironically, can leave us worse off financially.
In addition, the folks we know are key sources of information and advice. We rely on friends to help us identify good movies, restaurants, vacation spots and more. Indeed, seeking the advice of others is a smart strategy—until the subject turns to money management. What’s the problem? If folks rave about a new electronic gadget, that probably means it’s a worthwhile purchase. But if they rave about an investment, there’s a chance that the investment’s popularity has driven up its price—and future returns could be modest.
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