Chris Budd is the author of The Financial Wellbeing Book and producer of a regular podcast on the same subject. In this interview, Chris discusses the connection between money and happiness.
In your book, you emphasise the importance of self-awareness. Why is it so critical from a financial planning point of view?
Financial planning is very simple — work out what you want from life and spend your money on that.
But of course, it’s not always that easy. The best way to do it is to use a third party. We go through life with lots of self-limiting beliefs, lots of things we assume to be true, but we need a third party to challenge us.
Give me an example of a common false assumption.
Imagine a 55-year-old who tells a financial planner that they want to retire at 65. The first question a planner should ask is; why 65? Often they’ve not really thought about why. They just think that’s the age when they’re supposed to retire. For some people, the right age may be 75; for other people it might be earlier.
What’s your view on the link between money and happiness? Does money make us happy?
Money is important. But it’s a tool; it makes us happy by enabling us to do things. If we work out what will make us happy, we can direct our money in the right ways.
I’m not one of these people who says that money doesn’t buy you happiness. It does. If you don’t have a great deal of money, and you get a bonus that means you can go on holiday, that’ll make you happy. Of course it does. But there’s a level at which more money won’t make you more happy. If you give Bill Gates a tenner, he’s not going to notice.
There are loads of studies about this. In one, they asked a bunch of lottery winners and a bunch of people who had suffered a serious life-changing accident, were they happy before and after the incident? Actually, whoever was happy before, in either group, were also happy afterwards. In other words, the event made no difference.
So the amount of money we have can help. But actually, knowing yourself, working out what you want from life and spending your money on that is a much better way of increasing long-term well-being than seeking short-term happiness.
So, if money isn’t the most important contributor to people’s happiness, what is?
My favourite study on this is from Harvard. They asked 900 or so young people what would make them happy in the future. They all said two things — money and fame. That was 75 years ago and they’ve been back to this group every two years. Overwhelmingly their answer for what actually does makes us happy is the quality of our social relationships — not the quantity, the quality — they’ve even seen that lonely people die earlier.
That proves the point that financial well-being is just part of our overall well-being.
From a personal well-being perspective, is it better to spend money on physical possessions or on experiences?
Retail therapy works. You’re feeling a bit fed up so you go out and spend some money on something to cheer you up. But the happiness you get from buying something is short-lived. Whatever it is that you bought, once you’ve read it, looked at it, eaten it, or whatever it might be, the well-being tails off.
If you spend that money on an experience, then that creates memories, and well-being from memories is much longer lasting.
What evidence is there on the link between happiness and giving money away?
In one study a load of students were given £50. Half were told to spend the money on themselves, and half to spend it on other people. It was actually the second group who reported greater increases in their well-being.
It’s important to give your money on the basis of joy rather than reaction. It might feel like a good thing to do to give money to someone on the street who’s homeless. But if you give to a homelessness charity, you’re giving through a feeling of joy rather than a feeling of guilt.
And give to a cause that you have personal experience of; if you’ve got a friend suffering with cancer, run a marathon for a cancer charity. Finally, it’s good if your giving is planned and organised.
If you’d like to talk about anything mentioned in this interview, get in touch.
This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 14 August 19. You are recommended to seek competent professional advice before taking any action. The value of investments and the income from them can go down as well as up, and you may get back less than you originally invested. Past performance is not a guide to the future. The investments described are not suitable for everyone. This content is not personalised investment advice, and Cooper Parry Wealth can take no responsibility for investment decisions you may make as a result of this information. Tax and estate planning advice are not regulated by the FCA.
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