Saturday, December 03, 2005

Brent Sheather: Money won't buy happiness

Anyone who watches Desperate Housewives or The Sopranos will know that one of the major downsides of having a busy career like that of a lawyer, doctor or company director is that the job can crowd out personal time for family, friends and other interests.

Sure, most high-powered jobs pay really well but behavioural finance studies suggests that earning lots of money doesn't make you happy.

A recent report by James Montier, investment strategist at investment bank Dresdner Kleinwort Wasserstein, explores this intersection of psychology and finance in more detail. Montier summarises much of the academic research on the subject and concludes that you really cannot equate money with happiness.

Apparently those people who value materialistic goals, like having a nice coastal property or a Ferrari, are usually less happy than those who are more into intrinsic goals like how we feel about ourselves, relationships and community.

Not only are they less happy than their children-kissing counterparts, research suggests capitalists pursuing the dollar are also much more likely to suffer from a variety of mental disorders including paranoia, histrionics and narcissism. Ouch!

Montier quotes a Dutch study that looked at the aspirations and objectives of two groups of students - those on a business course and those training to be teachers. The business study students were more likely to be seeking to attain wealth and establish a reputation. The infant school teachers, bless their souls, were more interested in helping the children.

The research found that the nice teachers, although they would earn less, were much happier than the shallow business school students.

Business students were less satisfied with their present lives, felt less vital because they were more oriented towards wealth than towards helping people in need. Readers who would like to see how they score on an aspiration index should go to http://www.psych. rochester.edu/SDT/measures/aspir - scl.html. It measures how important various factors are in our lives. After answering the questions, the scores can be combined to analyse how important the six dimensions are to you.

So what is the profit-oriented, private investor to do? Montier helpfully suggests that those coveting their neighbour's house need to recognise that the achievement of material objectives isn't going to lead to happiness but he adds, before you give away all your assets, that money can enhance happiness levels if you spend your cash on experiences rather than material goods.

Another study, also by some Dutch researchers, suggests that the purchase of experiential goods makes people happier and were generally seen as money well spent.

The research also found that as people's income rose so did the rate at which experiential purchases dominated their happiness. But why should experiences like, say, a cruise on the Sungoddess make us happier than staying at the Hilton? Evidence suggests three possible reasons:

* Firstly, experiences seem to be open to positive review. When looking back at the trip on the Sungoddess, you tend to remember the people you met and the places you visited and conveniently forget that you fell off the back of the boat two days out of Auckland. Also material goods are often assimilated sooner - you get used to the Ferrari really quick and driving to Auckland is still a drag, all a Rolex really does is tell the time and so on. Assimilating your present position, and judging it as the norm, is known to psychologists as hedonic adaption. Experiences on the other hand, tend to be reasonably unique thus preventing the hedonic adaption process from kicking in.

* Second, experiences are more central to one's identity. We are defined by our experiences. Material possessions tend to be peripheral.

* Third, experiences have more social value. Bragging about staying at the Hilton is unlikely to endear you to anyone but talking about falling off the Sungoddess and swimming 10km to shore through shark-infested waters is likely to be more interesting.

So Montier's message is clear; materialistic pursuits pose a significant stumbling block on the path to happiness.

The more people aspire to materialistic goals, the less satisfied they appear to be with life and the greater the risk that they may develop mental health problems.

Perhaps the real test for investors of whether one has made the transformation from materialistic aspirations to the pursuit of more intrinsic values is if one can still be cheerful after a 20 per cent fall in the Dow. Personally, I am still getting over 1987.

* Brent Sheather is a Whakatane-based investment adviser.

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