Advisors in Pursuit of Happiness

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.