• Hannah

When Money Can Buy Happiness

Updated: Feb 20, 2020

My first job title was "Research Analyst." It was exactly the job I thought I wanted. I spent most of my time researching funds, testing portfolios, and reading economic updates. I had always thought finance was "cool" and finally working in the industry in a research capacity, I felt cool. Unfortunately (or fortunately) the firm I was at began moving towards a more static portfolio that required less "research" and in due time I was asked to add building financial plans to my list of duties and I effectively became a financial planner. As they say, the rest is history!

What I love about financial planning is that it recognizes the human element inherent in investing and managing money. It’s not just data and numbers that dictate your financial plan, it’s also your hopes and dreams, your fears and anxieties, and ultimately your values that form that plan. As it turns out, we are not robots seeking the greatest level of efficiency. Instead, I’ve come to believe that we’re value-based actors who may act irrationally from an economic standpoint, but we do so because we are driven by alternative needs and desires. And if we want to succeed at investing then we need to better understand human beings and how they make decisions.

Roughly a year ago I was asked to be on the finance committee for my church. As I reviewed our budget and dug into our giving I found myself contemplating the "why?". "Why do people give?” "What drives that decision?" In this context, I believe there are a few answers. The one I’m most interested in discussing here has to do with values. Oftentimes, people give because they value the work an organization is doing. It’s important to them. And what I realized as I pondered that answer is that money is the device by which we transact our values. When we spend, we express the things that we care about in a very tangible way. Some of those things are base-level needs, the things we find at the very base of Maslow’s Hierarchy of needs:

Most of us start at the bottom of the pyramid and spend our way up. We prioritize physiological needs and safety. We exchange money for shelter, food, healthcare, clothing, and transportation. We inherently value the things we need and for most of us, those base needs are the same. As we move up the pyramid towards self-actualization, our values begin to differ and consequently so does our spending. We start to spend on things like entertainment, charity, and material things. In doing so we express our values. We value going to concerts, spending time with our family, traveling, or being charitable. This is the area of spending that I find most interesting because it just so happens to be critical to what I do – financial planning.

You may not realize it, but when you sit down with an advisor to build a financial plan, more often than not, you will have a conversation about values. You’re essentially telling them: "these are the things I want to spend my wealth on." For most, the top of that list of values is retirement. You value quitting your job and spending more time doing the things you enjoy. And because you value that and it’s important to you, you’re willing to transact in that financial goal with your money. Other areas of value might be the things you want to do in retirement: travel, remodel your home, spend on your grandkids, help pay for a child’s wedding, etc. These are all things you’re willing to spend money on because you value them. And because, more often than not, you think they will make you happy.

At the same time that I was exploring this question of values with my church finance team, I was also undergoing counseling to help process a lot of change that has recently occurred in my life. Being who I am, I took it upon myself to do some research in this area as well. I started with the popular Coursera course – The Science of Well-Being taught by Yale Professor Laurie Santos (you can find it here). In just the first few lessons, the topic of money popped up. Curious. I begin buying books on positive psychology and the research being done on happiness and more and more, the topic of money popped up. Why? Because we naturally believe that money can buy happiness. Even though we’ve heard the saying over and over that it can’t, survey after survey shows that we nevertheless believe that having more money will increase happiness. Luckily, there’s empirical research on this subject! And what we find is (surprise) money can’t buy happiness, BUT it can help.

After a certain point, an increase in income does not improve well-being because once our basic needs are met, having and making more money doesn’t automatically improve our happiness. However, how we spend it does. When we can identify what it is we truly value and how we can go about pursuing those things, we actually can increase our level of happiness. You can't go out and buy a tub of "happiness" and call it a day. And while the activity of purchasing things will give you a boost in happiness, it's temporary and will go away as you become accustomed to your purchase. However, there are instances where you can pursue your values with your money and experience a more sustainable boost in happiness. For example, spending time with my children and watching them learn and play together brings me great joy and I can use my resources to spend more time with them. I can outsource certain time-consuming chores and in doing so, enhance my happiness. As many of my readers know, I also love baking. Baking gives me time to think and allows me to use my creative energies to create something for others. It has been, for me, a productive way to improve my well-being by spending on a madeleine pan or special ingredients to create something that brings me joy.

The best part of this intersection of positive psychology and money (for me at least) is that this is a big part of financial planning. When I sit down to build a projection with my clients, a critical part of what I'm doing is identifying their values and making sure that they have the resources needed to pursue those values. If you want to enjoy a special hobby in retirement or spend more time with your kids, let's make sure you can do that! Not only that but on the flip side of happiness, we also want to minimize fear and anxiety by making sure that the things that detract from your happiness are taken care of – things like health needs and long-term care. And what Ive found, over and over is that this process has a positive effect on my clients. It gives them a sense of both confidence and contentment with regards to how their financial future might play out.

The last Saturday of this month I'll be speaking at my firm's annual Investor Conference for our California clients and I’ll be talking in greater depth on the interplay between money, happiness, financial planning, and investing. We’ll dig into the misconceptions about money as well as what the research has to say about how spending can make us happier in addition to the psychology behind it. As a financial planner with an investing background, I am extremely interested in behavioral finance and how our psychology affects the way we invest and am constantly reading and researching how understanding both can improve our well-being both as investors and as people. If you’re interested in attending this event, you can learn more about it and RSVP at www.sherwoodfp.com/events.


Mcleod, Saul. “Maslow's Hierarchy of Needs.” Simply Psychology. Simply Psychology, May 21, 2018. https://www.simplypsychology.org/maslow.html.

A version of this article was first published Feb. 4, 2020 at sherwoodfp.com. It is being used here with permission from the author and through an agreement with Sherwood Financial Partners.


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