This research defines the concept of financial well-being and explores how to establish it with the connection between money and happiness. Also, the study shows that financial well-being can be achieved through the combination of earning and spending money in a right way, which is earning from the suitable quadrant (Employee, Self-employed, Business Owner or Investor) and spending on experiential goods and on other people. The research primarily includes Abraham Maslow’s “Hierarchy of needs” to prove its points and show the steps required for achieving overall welfare. This has been done by examining Robert T. Kiyosaki’s book “Cash Flow” as well as other articles intended to show how more money can make a person happier. As a result, a deep analysis of money-happiness connection has been made; the steps required to be taken to reach financial happiness and overall satisfaction of life have been described. This will allow individuals to get a better understanding of the nature of money; and how it can be used to create more happiness for oneself.
Andre Agassi was at the peak of his golf career in the 1990s and early 2000s and gained a considerable amount of wealth. He was almost unbeatable and no one could imagine that the successful sportsman could have an unhappy life, but he truly did. In 2009 the tennis superstar wrote a book in which he revealed that he hated his life and the career of a golf player. He wrote that his current status disconnected him from his personal relationships and life in general. Only in 2001, when Agassi started to be involved in philanthropic work, his life began to bring him much more satisfaction than the golf career (Greenman, 2014).
Kelly worked for an insurance company and earned more than 28,000 pounds per year. She had a secure high-paying job but over the time she felt unhappy with it. After working there for three years, Kelly could not stand working in the insurance anymore and hence she quit. Suddenly, her life was positively changed. She became an organizer, helping with setting up the stalls, liaising with chefs and organizing pop-up street fairs. She earned less than a half of her previous salary but she felt happy and enjoyed her life (Phillipson, 2015).
These examples lead to even more questions: why do some people choose a job and work there for a lifetime while others switch their workplaces every two years? Why do rich people sometimes live unhappily while others build their own businesses or found philanthropic organizations? It is important to know how money is connected to happiness in order to understand these examples and to be able to answer the questions mentioned above. The connection between money and happiness form financial well-being. Because financial well-being is the result of an effective money-happiness connection, it is the foundation of a person’s overall welfare.
At first, it is critical to define financial well-being and overall welfare in order to understand this complex idea. Financial well-being is a combination of both earning and spending money in a right way which enables an individual to be happy and satisfied with his or her financial situation. It is important to distinguish financial well-being from another term, which is financial freedom. The main difference is that a person with financial well-being is not necessary a financially free person. For example, if someone is satisfied with working as an employee, getting a paycheck and then spending it, he or she is in the state of financial well-being. However, such a person cannot be called a financially free person, because freedom is when there is no need to physically work for money. In addition, overall welfare of a person is the state of doing well especially in respect to good fortune, happiness, well-being, or prosperity, according to Merriam-Webster.com. The welfare is, basically, the result of meeting the five levels of Maslow’s “Hierarchy of Needs” (1943) which are physiological, safety, social, esteem and self-actualization needs.
Fig. 1 Maslow’s “Hierarchy of Needs” (1943)
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Source: BBC.com (2013)
It is possible to reach financial well-being, or financial happiness, only if one understands how more money can make a person happier. Researchers from Vlerick Business School designed a specific “financial happiness barometer” in order to measure other people’s financial happiness levels (Vlerick Business School, n.d.). The study started in 2013 in Belgium to get a better understanding of Optima company’s customers and their needs. Also, the research is implemented for expert financial planning purposes. The research is conducted through literature analysis, measurement instrument development and validation, and outsourced large sample survey (Debruyne, Goedertier, Geskens, 2014). Reviewing the results of the study in 2013 and 2014, scholars state that it is necessary to set financial goals and personal plans because “increased ‘financial happiness’ in itself increases an overall feeling of happiness” (Vlerick Business School, n.d.). Financial happiness is also a state of mind. When someone perceives money as a tool it is easier for this person to reach life goals and, actually, become happier. Money should not control an individual’s life but it should be used as means to achieve success, meet the first two levels of Maslow’s hierarchy which are physiological and security needs, and, finally, set a stage for financial well-being. Understanding how more money can make a person happier one can conclude that there is indeed a connection between money and happiness.
Even though the money-happiness connection exists, different scholars looked at how ordinary people can achieve it and establish a financial well-being on their own. The way of earning money is the first step to reach financial happiness. For instance, in the “Cashflow Quadrant” R.T. Kiyosaki’s (2000) objective is to show four different types of people based on their income. The people are divided into four categories: Employee, Self-employed, Business Owner and Investor. This idea signifies that only Business Owners and Investors provide an individual with true financial freedom allowing them to work less, earn more, be financially secure, and pay less in taxes. Those who believe in the connection between the way of earning income and happiness argue that people have different personalities and hence are suitable for different categories. Most people would probably agree that finding the perfect job is critical to anyone’s level of happiness. It is easier for people to become truly happy if they find their dream job or when they are in the right quadrants because they earn their money in a pleasant way.
Earning money is not enough for complete happiness as the person needs to know how to spend the money in the best possible way. The vast majority of research tends to see the money-happiness connection and financial well-being only in people’s spending habits, which are spending on experiential goods rather than material and helping those financially in need. They claim that the way people spend their money defines whether they are happy or not. This point of view is explained in an article written by scholars at the University of Virginia, University of British Columbia and Harvard University (2011). For example, 34% of people get more happiness from material goods, while another 57% from experiential purchases. Changing the spending habits and shopping mentality can lead to satisfaction and an increased level of happiness. People can become happier just from giving away a part of their income to charities and those who are in need.
Michael Norton, who studied the money-happiness connection, holds the same opinion in his Ted Talk show (Ted.com, 2011). He presents several studies conducted to end the controversy and claims that the lottery winners are not happy because they do not spend their money on others and just keep it for their own purposes and thus become very antisocial. Many experiments proved that spending money on others made people much happier than spending it on themselves. Combining the habits of earning and spending money right will almost certainly lead to an increased level of happiness for most of the people.
Those who claim that more money does not mean more happiness state that these two subjects are not interdependent since the long-lasting happiness can only be built upon the non-material and spiritual life of an individual. For example, in his article Novotney, A. (2012) claims that money cannot buy happiness. He talks about an experiment which was conducted in rich households. The researchers concluded that money is not important for these rich families because they have other problems concerning the well-being of their children, their aspirations and future life. In addition, the adherents of this idea emphasize that money does not ultimately solve all difficulties and it even creates several downturns. Novotney argues that rich people lose many of their friends, become isolated and their children become spoiled. Another concern that disturbs the author is the lack of motivation for living and growing afterwards. He gives an example of a man who sold his business, lived well and lost the meaning of life and motivation.
In addition, Richard Easterlin conducted a survey from 1972 to 2000 and concluded that more money does not mean more happiness. Researchers annually asked one question "Taken all together, how would you say things are these days? Would you say that you are very happy, pretty happy or not too happy?" According to Easterlin, people were happy when they spent their free time with loved ones and had good health conditions (Fock, 2005).
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It is clear that researchers emphasize the anecdotes of uncommon life tragedies of several millionaires, but they do not address the issues of the ordinary middle class and poor people. Studies that say that money does not matter confuse their readers by doing a surface-level analysis instead of a deep one of the people’s true sources and foundations of happiness. Looking back at Abraham Harold Maslow work it is true that such factors as self-actualization, esteem, love and belonging needs are a significant part of a person’s level of happiness. However, the base of this pyramid consists of two types of needs, which are safety and physiological needs and hence is more or less materialistic. Certainly, these needs are basic because without them the rest of the needs cannot contribute to a person’s happiness. If a person feels hungry or in need of shelter, he or she will not think about esteem or self-actualizations needs. Everyone needs food and home which can only be bought by money which is a key element of financial happiness and financial freedom. Money is the means by which people achieve overall happiness. It can also be a “hygiene” factor which means that money can be a dissatisfier that contributes to an individual’s unhappiness if there is not enough of it (Herzberg, 1954).The examples mentioned above looked at the top of Maslow’s pyramid failing to provide a full analysis of people’s needs. Therefore, the main reason to argue about the money-happiness connection lies in the essence of financial well-being, which in turn allows for overall welfare.
It is futile to absolutely deny the importance of money but it is also not sufficient to say that money will solve all of the problems. Although the American Dream is highly individualistic, the vast majority of the people perceive it in a very conventional and materialistic way. For example, most of the responders connected their dream to more or less material goods. One person said that the typical American dream is “2 or 3 bedroom home with a white picket fence out front. Car in drive way. Happy married with 2 or 3 kids running around. Having a steady job to pay the bills. Keeping up with the Joneses or let the Joneses keep up with you.” (2008). Unfortunately, this idea leads most people to the path of decline. When people try to imitate financial well-being and just do what others think is a right decision they also repeat their mistakes, like going into debt to “keep up with Joneses”, have a big new house and a new car or preferring a high paying job to a beloved one. Statistics show that this traditional scenario is rarely possible and it does not allow people to achieve the overall welfare “Total consumer credit has risen by a whopping 22 percent over the past three years” (Snyder, 2013); “Right now the middle class is taking home a smaller share of the overall income pie than has ever been recorded before” (Snyder 2013). This shows that people tend to not understand how the connection between money and happiness works. Believing that they are on a path to overall welfare and the satisfaction of life, they struggle to meet the financial well-being prerequisites which are physiological and safety needs.
Most people who are interested in this topic just do not study the question of money and happiness deep enough. There is a sequence to achieve the overall welfare for the ordinary person. At first, everyone should satisfy their basic physiological and security needs and create the financial well-being of earning money from the right quadrant. Then, one needs to add the rest of Maslow’s pyramid which is love and belongings, esteem and self-actualization by creating a beloved family, getting the dream job, and of course, spending money in the right way by helping those financially in need and then carefully distribute earned income on others and ourselves. This will help to establish overall welfare and maximize the satisfaction of life. Following these ideas, probably, everyone can answer questions listed at the beginning. People who spend a lifetime working in the same place feel comfortable there while others still search for the “perfect job”. Some rich people are unhappy because they do not spend their money on others or because they fail to meet the top three levels of Maslow’s pyramid of needs. Finally, people build businesses in order to earn money from a desired quadrant and start philanthropic organization because they feel the duty to help others.
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