Can money buy happiness? As with most philosophical questions, a simple yes or a no both miss the nuance. In this podcast, Barry Ritholtz chats with Brian Partnoy, both gents help people build wealth to fulfil their financial goals or as Partnoy’s firm says they are an outsourced Chief Behavioral Officer who help people achieve ‘funded contentment’. The discussion begins with the nuanced answer to the question:
“…elimination of misery as distinct from the achievement of happiness, there’s no doubt that money’s most powerful impact on our emotional lives, our physical lives is the elimination of misery, so we’re built to survive, that’s our evolutionary story and money buys us shelter, it buys us food, it buys us warmth, it buys us safety, at a higher level it can allow us to afford getting rid of aggravation or certain people you don’t want to see or certain commutes you don’t want to make. we can think of money as a way to mitigate or even eliminate sadness disappointment and misery, that is by far the most powerful relationship between money and a particular emotional state”
But not necessarily as a tool for achievement of happiness.
“… there’s been study after study that shows that once you can afford the basics in life having that marginal dollar isn’t necessarily going to put you in a good mood or a bad mood you’re sort of wired with a certain you know disposition and if you’re a generally cheerful person you’re going to be that way and if you’re generally kind of dower or miserable well making hundreds of thousands of dollars a year aren’t going to make an impact.”
However, it can help life more meaningful:
“…day-to-day happiness versus “Contentment” what Aristotle called “Eudaimonia” and there’s some interesting research from Danny Kahneman and Angus Deaton that shows that if spent wisely, money can underwrite a meaningful life, and there are different sources of meaning in our lives. When spent wisely on certain types of experiences and relationships money can very much be used effectively to lead a happier, better life”
Then they discuss how much is enough money?
“…a famous HL Mencken quote was once they asked how do you define wealth and his answer was $100 more than my brother-in-law…
…Welcome to the human condition. Welcome to the evolutionary path that we’ve been on. Status matters, tribe matters, and these aren’t trivial things these are deep down genetic codes that we all live with and so when we have a little bit more than others we feel better than ourselves and so you’re absolutely right the studies do show and I don’t have the exact numbers that people would rather have $100,000 income when others are making $80k versus $150,000 income when others are making $200,000 a year.
You and I might say well I’d prefer one versus the other, but the fact is that the preponderance of responses reflect the fact that we want to feel connected to our tribe and safe in our tribe and when you have a little bit more than others it can make you feel pretty good go quote for quote you gave me H.L. Menken I’ll give you the original JP Morgan he said nothing corrupts your financial judgment more than the sight of your neighbor getting rich”
Then they touch upon a topical aspect of our relationship with money – when the going is good such as now, we lose sight of the goal – they reinforce the need to stick to a financial plan:
“It’s really important from a financial well-being point of view for people to have their own individual authentic goals hopefully baked into some form of a financial plan. So you feel like you’re making progress toward the things that you’ve said matter to you and your loved ones. That can be used to mitigate some of these negative emotional impacts, when it’s just like, I’m at the casino I bet on black he bet on red he won he’s rich I’m not and you don’t feel very good about yourself.
That that’s not a great way to work your way through your financial life
Investing outside of a well-defined financial plan is speculation. And that might not necessarily be a bad thing you know you like to pick stocks not anymore I started began on a trading desk but look I take around with market timing is what I do but that’s just outside of professional that’s just in my own little stupid personal account OK so I’ll start and by the way that 2% of my assets scratches such an itch. I can’t begin to tell you that’s why we advise advisors to always allow some clients to have cowboy accounts absolutely …We’ll manage 97% of your assets 3% go wild buy crypto all this stuff …
…there’s nothing wrong with being interested in the stock or bond market or in crypto or in any other market and seeing if you can deliver bring your insight into picking better securities or better outcomes.
However if we’re really thinking about the relationship between money and happiness when you have a well defined plan it means that you’re heading towards something it could be your kids college education , It could be a comfortable retirement, it could be a particular vacation that you have in mind, so you pick your goal and you invest accordingly. You build a portfolio, you have time horizons, you have risk tolerance, it’s not as sexy or as provocative as playing the markets so to speak but the conversation about money and happiness actually makes a lot more sense in the context of having well defined goals and the other stuff is kind of fun but just let’s call it what it is, it’s not investing it’s speculating.”
Partnoy ends with the concept of Purposeless Capital, which in simple terms means greed:
“Purposeless Capital” – there was no intent behind it, there was no plan to meet certain life goals or give money to philanthropy, build experiences with the family. It was just more for the sake of more.
As we’ve learned over time, more money doesn’t always buy happiness, but if used right it could buy experiences you can help others and it can bring a life of funded contentment if applied correctly”
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