Two hundred and forty years ago this July, Thomas Jefferson wrote that America was declaring independence in the belief that basic human rights include “Life, Liberty and the pursuit of Happiness.”
Yet we Americans, blessed with abundant natural resources, outstanding colleges and universities, intellectual curiosity and creativity, and the world's highest gross domestic product aren't all that happy. In fact, the Swiss, Icelanders, Danes, Norwegians and Canadians are all happier than we are, according to the 2015 edition of the World Happiness Report. Even beleaguered Israelis and Mexicans are more content with their quality of life, the Happiness Report finds.
Why does this matter? Because financial advisors have a great deal of influence on their clients’ well-being. Their own happiness — or lack thereof — also affects the level of comfort and trust felt by those clients, and by colleagues, staff and others they deal with.
What Is Happiness?
“The Greeks a long time ago distinguished between two kinds of happiness or well-being,” noted Thomas Gilovich, a professor of psychology at Cornell University. “One is hedonia, or moment-to-moment pleasure; the other is eudaimonia, feeling that one's life is being lived virtuously. The first one is a big part of our lives, but the second one lasts longer, almost by definition. So when you think about happiness, you need to think about both components.”
This is the context for the Declaration of Independence's “pursuit of happiness” language, according to political and social commentator Carol Hamilton. “[W]hen John Locke, Samuel Johnson and Thomas Jefferson wrote of ‘the pursuit of happiness,’ they were invoking the Greek and Roman philosophical tradition in which happiness is bound up with the civic virtues of courage, moderation and justice,” she wrote in an article on History News Network. “Because they are civic virtues, not just personal attributes, they implicate the social aspect of eudaimonia. The pursuit of happiness, therefore, is not merely a matter of achieving individual pleasure.”
Financial insecurity interferes with moment-to-moment hedonic pleasure, Gilovich said. For example, you might find that after making your monthly debt payments, you won't have enough cash flow to buy the new car you want. “But if you feel financially insecure, one of the things you might ask yourself is ‘How did this come about?’” he pointed out. “And that leads you to think about your life choices and the more durable kind of happiness.”
Measuring National Happiness
“There's the emotion of happiness, and there's being happy with your life as a whole,” agreed University of British Columbia economics professor John Helliwell, co-editor of the World Happiness Report. “The report focuses on the second part: How happy you are with your life as a whole, rated on a scale from zero to 10.”
Launched by the United Nations in 2012, the World Happiness Report ranks 158 countries based on what their citizens say about the quality of their lives. The U.S. is currently 15th on the list.
Six factors explain about three-quarters of the difference in country rankings, according to Helliwell: GDP per capita, social support (based on the question, “Do you have a friend or relative to call on in times of trouble?”), life expectancy, freedom to make life choices, generosity (having donated to charity within the past month) and trust (perceptions of business or governmental corruption). “You have to be pretty good at everything to make the top 10,” he said.
Year-to-year changes in indexes can be telling, said Helliwell, who also co-directs a program on social interactions, identity and well-being at the Canadian Institute of Advanced Research. After the worldwide financial crisis, for example, the report's editors tried to figure out what had happened to Greece, Italy, Spain and Portugal, whose indexes plummeted more than their drop in GDP could account for.
“Underlying their slump was a shared inability to solve the crisis,” he explained. “Feelings of social connection and social cohesion seemed to have been lost.” Although Iceland and Ireland were even more badly hit, neither had a significant drop in their happiness index. Why not? “In both countries, people got together and fixed things up,” Helliwell said. “They worked together with a sense of common purpose.”
Despite high GDP, the overall score in the U.S. was dragged down by lower ratings for trust, life expectancy, social support and generosity. The strongest negative factor in the U.S. ranking was distrust, according to Jeffrey Sachs, another editor of the World Happiness Report, who is professor of sustainable development and director of the Earth Institute at Columbia University. “If you ask, ‘Can you trust other people?’ the American answer has been in a significant decline,” Sachs said in a Wall Street Journal interview in May. Despite relative affluence, Americans’ sense of social cohesion has deteriorated.
The message for advisors: Happiness isn't all about money. Start a discussion with your clients about other factors that may influence their sense of well-being, such as social support, giving to others and the freedom to make life choices. Be especially conscious of people's need for someone they can rely on to look after their best interests. In an atmosphere poisoned by Madoff-type scams and Wall Street get-rich-quick schemes, it's crucial to act in ways that will earn and constantly reinforce your clients’ and colleagues’ trust in you.
It's More Than Money
Can spending money lead to happiness? We asked Ryan Howell, an associate professor of psychology at San Francisco State University, who has studied the link between purchasing habits and happiness.
“My research agenda started in 2003 with a ‘Psychology of Happiness’ class,” Howell told us. “The professor said, ‘We know money doesn't make us happy.’ To me, the story seemed more complicated than that. So we shifted our research to explore how people can spend their money to increase their happiness. We found that when people spend on life experiences, as opposed to objects, it makes them happier.”
This happiness is both of the moment and longer term. In fact, Howell's research shows that there are three phases of spending: anticipation, consumption and post-consumption. “People are happier anticipating experiences rather than material items,” he said. “And in the moments right after spending on an experience, they’re happier than if they’d spent that money on an object.”
One of the biggest advantages is that experiences can be shared with others. “For our 10th anniversary, my wife and I went on a tour of Italy,” he recalled. “When I look back at my life, I love vacations like these. I love being able to come home and relive them and share these experiences. This brings people closer to family and friends. And all the data shows that memories get better over time, whereas physical objects you buy tend to get degraded or wear out.”
In fact, buying things often results in what's called “hedonic adaptation.” That's when initially thrilling new purchases eventually become old hat, inducing us to want something bigger and better. That can put us on a “hedonic treadmill,” constantly trying to keep up with the Joneses by buying a bigger house or fancier car. Such negative outcomes tend not to occur when investing in experiences.
This suggests a way to evaluate spending choices. “My wife and I always ask whether buying something will increase our family intimacy and pleasure,” Howell said. “We have these really old couches in our house. People keep asking us why we don't replace them. And we say, ‘Well, it's not going to bring us closer to our friends and family, and it's not going to create any positive memories, so what's the point? Someday the couches will break, and then we’ll replace them.’”
The message for advisors: Our culture is full of pressure to buy material things. Clients, co-workers and advisors themselves may benefit from permission to invest in experiences rather than objects, encouraging choices that will increase life satisfaction and happiness. An interesting resource is BeyondthePurchase.org, an academic website co-founded by Howell, that offers free psychology quizzes people can take to find out how spending choices affect their happiness. Users receive personalized feedback, graphics and practical happiness tips — a cool tool you might consider recommending.
The Happiness of Giving
All over the world, even in the poorest countries and among the poorest people, those who give away money are happier than those who spend it only on themselves. Research by Elizabeth Dunn, a professor of psychology at the University of British Columbia, has found that people's happiness is more closely related to the difference their donation made, rather than to how much money they gave —even if the amount was quite small.
Dunn, the co-author of “Happy Money: The Science of Happier Spending,” has also uncovered initial evidence that philanthropy is good for the heart. “Our brand new work shows that spending money on others can improve high blood pressure among older adults with hypertension,” she said. “The happiness finding is now well demonstrated; the health finding is brand new.” (Note, however, that while happiness may help one's heart, a recently published British study found that being unhappy doesn't appear to shorten one's life.)
In “Happy Money,” Dunn and co-author Michael Norton, an associate professor of marketing at Harvard Business School, present five principles that lead to greater happiness: Buy experiences; buy time (use money to improve the way you spend your time); pay now, consume later; invest in others; and make it a treat.
By “making it a treat,” you learn not to take for granted what makes you happy. “We quickly adapt to whatever lovely things we have in our lives,” Dunn explained. “In fact, abundance is the enemy of appreciation. If we want to appreciate what we’ve got, it may be helpful to take a break from habitual forms of consumption.”
The message for advisors: Generosity is an important factor in creating happiness. Consider educating your clients about research that shows people who give away some of their money are happier than those who spend it all on themselves. They may need to know that there are advantages to helping others that go beyond a tax deduction. (For more about the rewards accruing to advisors and advisory firms that lead the way in charitable giving and volunteering, see “How Doing Good Can Help You Do Better” in December 2015 IA.)
To their credit, many advisors already donate money or time to charitable causes. It's also important to model gratitude for one's clients, teaching them to savor what they have and enjoy it more. By sharing appreciations from clients with your staff members, you can increase their happiness as they realize what a difference their efforts make.
Sonja Lyubomirsky, a psychology professor at the University of California, Riverside, has suggested making a conscious habit of acknowledging appreciation for one's good fortune, perhaps by keeping a gratitude journal. If this practice becomes stale over the long run, it's easy to add variety, novelty or surprise. You might hang a familiar painting in a new location, for example, or try a new experience.
The Science of Well-Being
To a certain extent, being happy is beyond one's control, according to Carol Graham, a senior fellow at the Brookings Institution and author of “The Pursuit of Happiness: An Economy of Well-Being.” She told us that there's an “intersect between what is determined by the environment as you grow, and what's determined by genetics and biology.” For example, she said, plotting age versus happiness results in an almost U-shaped curve, bottoming out in middle age. “People in most countries in the world get happier and wiser as they age,” she concluded. “The middle-aged slump turns upward earlier for those who are innately happier, giving them more happy life years to enjoy.”
Graham also noted that older people who live in “happier” places like Denmark (No. 3 in the World Happiness Report) or Costa Rica (No. 12) reach higher levels of happiness sooner. By contrast, people in low-ranked places to live and age will enjoy almost no happy life years. If your life expectancy is 60 and you are living in Russia (No. 64), for example, you will have almost no happy life years.
This finding has led Graham to write a book, tentatively titled “Happiness for All?” about inequality of optimism, happiness and belief in the American Dream. “People can be content with very little,” she pointed out. “But when you try to measure how they feel about their lives as a whole, there's a tremendous gap between the rich and poor in our country. It's not that money equals happiness, but people with more means are much more often leading the life they want to lead. They have a greater ability to make choices.”
Unsurprisingly, she has found that the constant stress of negative situations beyond one's control tends to impair happiness. People who are optimistic, on the other hand, usually lead healthier and wealthier lives. They are more likely to save, they don't worry about money as much and they’re more likely to want to help others.
Does happiness lead to altruism, or does altruism lead to happiness? Graham didn't have an answer to this chicken-or-egg question, but she suggested that “giving to others definitely has a more lasting effect on happiness than purchasing material goods.” Giving can not only create pleasure in the moment, but over time can also enhance eudaimonia, a sense of purpose and meaning in life.
One Advisor's Happiness
Happiness is much broader than success, observed Sheryl Garrett, founder of the Garrett Planning Network. “I didn't find true happiness until I started working with clients who fit me really well,” she said. “Prior to that, I felt more like an employee, even though I was self-employed. With these individuals, I had a relationship more like a trusted advisor, educator or coach. Instead of feeling like work, my job began to feel like a passion. Like a vocation.”
Thus, she suggested, having clarity about your mission is one of the keys to happiness. “Ask yourself, ‘What is it I’m trying to accomplish?’ And ‘Is this the most useful thing to do with my time and energy?’”
When it comes to support staff, Garrett favors giving them responsibility and then getting out of the way. “They want some structure to learn and grow, but don't micromanage,” she cautioned. “If you give them flexibility, I think that creates more happiness than simply giving them more money.”
Another measure of happiness, Garrett said, is the number of people affected for the better through your efforts. In the 15 years of the network she founded, which provides mentoring, training and support to other financial advisors, her efforts have directly or indirectly impacted an estimated 25,000 clients.
The message for advisors: When you make a positive difference in the lives of others — whether they number in the dozens, hundreds or thousands — you can justifiably feel a sense of eudaimonia.
Can Money Buy Happiness?
“Clients, advisors, staff members, collaborators, centers of influence: We all want the same things,” said psychologist and business consultant Ed Jacobson. “As human beings, we want to be understood. We want to feel that our lives have meaning and purpose, that we have an impact on the world. Of course, we also want to connect authentically with others, have happy times and enjoy a range of positive emotions; in other words, to feel good.”
These universal drivers push many people into overspending or overstriving.
Say you’re a financial advisor who wants to build a bigger and more profitable practice. After reaching that goal, you begin to feel restless and set a new goal. Delighting in obtaining the next bright shiny object, you become trapped on the hedonic treadmill.
“But when we have experiences — which can range from a satisfying meal to times of intimacy with partners or family to learning to ski and feeling the rush of the wind — those things are priceless, as the Mastercard ads say,” Jacobson pointed out. “We’re told to strive to cultivate these experiences. Then Mastercard tells us we need to spend money to have meaning and happiness.”
That message is only partly true, he said. “Up to $75,000 per year, money contributes to happiness. But after that amount of money, it ceases to be a determinant of happiness.”
His experience as a coach, speaker, workshop presenter and developer of the Positive Financial Planning framework has confirmed this view. “The advisors I know find that as they grow more successful, their happiness is more related to intangibles like seeing their clients and their colleagues and their own families flourish,” he said. “These experiences mean more to them than how much revenue their firm made.”
Jacobson believes that important positivity skills can be learned, just as we can learn to be more mindful. “As you get better at having a positive mindset, focusing on your own and others’ strengths and skills, deeply listening and developing a compelling positive vision for your own life, you become more empathic, more present, more productive and more effective in your work and in your life. You’re able to enjoy better relationships with others and have greater success. You have higher life satisfaction. And if that's not happiness, I don't know what is.”
A Reminder of What Makes Life Worth Living
What research has been teaching us about happiness is both edifying and troubling. For Americans, there's clearly a need to knit stronger bonds of trust and connectedness, and to enable people on every income level to freely make life choices. The more we can do to actively support values like these, the stronger and more resilient our society will become.
On an individual level, adopting these guidelines for greater happiness can help you create a life of eudaimonia, rich in purpose and meaning. As a financial advisor, you also have a unique opportunity to make a difference in the life of others. As Tom Gilovich told us, “Knowing that you’ve increased your clients’ well-being and financial security — there's no better feeling than that in creating the sense of satisfaction of a job well done.”
--- Read "How Doing Good Can Help Advisors Do Better" on ThinkAdvisor.