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Your Money or Your Life
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Your Money or Your Life

The effect of money, bad decisions, and emotion on well-being

A Q&A with Tom Rath and Jim Harter, authors of Wellbeing: The Five Essential Elements

It's one of the central questions of human existence: Can money buy happiness? Tom Rath and Jim Harter, Ph.D., authors of the new book Wellbeing: The Five Essential Elements, have arrived at the definitive answer: no -- and yes.

Rath, coauthor of the bestsellers StrengthsFinder 2.0, Strengths Based Leadership, and How Full Is Your Bucket? and leader of Gallup's workplace research and leadership consulting worldwide, and Harter, Gallup's chief scientist for workplace management and well-being and coauthor of the bestseller 12: The Elements of Great Managing, aren't trying to have it both ways. But they would say that the question is a bad one.

What people do with their money matters much more to their well-being than how much money they have.


Money can buy happiness -- as long as it buys good experiences, which includes giving -- say Rath and Harter. While it's true that the material things we buy don't make us happy for very long, money does fund security, charity, and experiences, which can lead to increased well-being. And well-being is much more than happiness. Rath and Harter arrived at these conclusions after years of study, including a thorough review of decades of research on well-being and a comprehensive global study of well-being in more than 150 countries.

What they discovered shows that most of what we thought about well-being is wrong, including the definition of well-being. As they note in Wellbeing: The Five Essential Elements, well-being is the result of fulfillment of five interconnected elements -- Career Well-Being, Social Well-Being, Financial Well-Being, Physical Well-Being, and Community Well-Being. Those who have high levels of each are more likely to thrive, no matter who they are or where they live.

In the first of this three-part series, Rath and Harter discussed Career Well-Being and Social Well-Being. In this interview, they talk about Financial Well-Being: what it is, what it's not, and money's effect on how we experience and evaluate our lives.

GMJ: You pored through the scientific literature and asked thousands of people dozens of questions about well-being. So if anyone can answer this, you can: Does money buy happiness?

Jim Harter, Ph.D.: Well, kind of. If you live in a wealthier country, you are more likely to be thriving, that is, to evaluate that you are doing well in your overall life. Money doesn't guarantee a good life, but if you're in a high-GDP country, your odds of perceiving that you have a good life improve.Wellbeing: The Five Essential Elements

Remember, though, there's a difference between happiness and well-being. Happiness is an ephemeral experiential quality, while well-being refers both to how you think about your life and how you experience your days. When we look at how people experience their days, the data show that what people do with their money matters much more to their well-being than how much money they have.

GMJ: What does GDP have to do with well-being?

Dr. Harter: Part of it, I think, is meeting your basic needs. You've got a better chance of having your basic needs met when you're in a wealthier country; you have a better chance of having some choice in doing what you want to do when you want to do it. That frees you up to do some things that other people wouldn't be able to do.

But among people whose basic needs have been met, there's quite a bit of variation. People will have many different experiences within different income bands. The two key areas are what you do with your money and your daily level of comfort or stress. How you spend money affects the level of security you have, and Financial Well-Being has more to do with financial security than income.

When we asked people to assign points to the five categories of well-being -- to spread the points out however they wanted according to what they thought was most important -- we found that the people who gave higher weight to Financial Well-Being had the worst actual well-being; the people who gave higher weight to Community Well-Being and Career Well-Being had better well-being. But the kicker was that the people who balanced points across all five areas were the ones who did the best on overall well-being.

Tom Rath: There's an interesting discovery we've been talking about recently: When you ask people to evaluate their lives overall, looking back over the last thirty, forty, fifty years, their evaluation is much more dependent on how they've done financially. Perhaps incorrectly, people use income as a proxy for success in life.

I've got a hunch that insight might explain part of the difference between why life evaluation has a much stronger relationship to income than daily experience ratings. Money is one of the few ways that we count and rank and stack and compare things in life. And perhaps it's because humans are innately wired to compare their earnings to those of others.

If you can minimize your daily stress and worrying about money, that brings you greater well-being.


GMJ: So, we're naturally wired for "keeping up with the Joneses"?

Dr. Harter: Status is a big part of life evaluation. In one experiment, people were asked whether they'd prefer an annual income of $50,000 when people around them made $25,000 or an income of $100,000 when the people around them made $200,000. Nearly half would choose the former -- they'd prefer a lot less money as long as it's a lot more than everybody else has.

Rath: One thing we've learned about finances is that how you evaluate where you are right now is highly relative. It's heavily dependent on your peer group; it's about who you compare yourself to on a regular basis. That's not a good thing by any standard, but it does factor heavily into the way people evaluate their lives. And people might put too much weight on money as the measure of how their life's doing, rather than, or at the expense of, other important elements of well-being.

Dr. Harter: But when you look at what people actually experience throughout the day and the level of financial security they have, their well-being is dependent on much more than just how much money they have.

GMJ: How do you define financial security?

Rath: Financial Well-Being is the perception that you have enough money to do what you want to do, and you don't regularly worry about money. One big purpose of money is to alleviate stress. If you're worried about having enough money to put food on the table or to pay for shelter for your family, lack of money can create a great deal of stress. If you can minimize your daily stress and worrying about money, that brings you greater well-being. After that, it appears that money is beneficial to your well-being if you use it to buy experiences and to do things for other people, not if you just accumulate more material possessions.

GMJ: Why is that?

Rath: With experiences, you get a lot of value. There's the anticipation of the experience beforehand -- sometimes for months beforehand. Then you get the actual experience itself. And afterward, you have fond memories of the experience. Whatever it is we do to create good memories from those events seems to create greater well-being. The boost from a material purchase, on the other hand, wears off pretty quickly, and your satisfaction with the purchase goes down over time.

Dr. Harter: If you think about it, before the modern technological conveniences that we have now were invented, people got together and talked about their experiences. That helped build social cohesion, and the stories they told became part of their identity. Our identity is deeply rooted in our experiences with others and the stories we generate from those experiences.

GMJ: You wrote about a connection between emotion, spending, and well-being. What emotions are associated with spending?

Dr. Harter: Sadness, for one. There are some studies that show even people with induced sadness are more likely to spend more money. But then they feel worse.

Rath: There's some conventional wisdom that a little retail therapy helps pick you up when you're down. What's interesting is that not only does spending not work to pick up your well-being, but when you're sad, you're willing to spend more on an item than you otherwise would have. You'll pay two to three times as much in some cases on an item that doesn't help your well-being. So people probably don't make very good decisions when they're in a bad mood either.

One person we interviewed learned to live on half her pay and save the rest; she has great Financial Well-Being because she feels financially secure.


GMJ: That, in and of itself, is a bummer.

Rath: But you can avoid it; you can prevent situations like that from occurring. It's called a positive default system, a way of managing your not-so-great impulses, so that the easiest thing to do is also the best thing for you to do.

Dr. Harter: As an example of a positive default system, one person we interviewed had one of her two monthly paychecks deposited directly into her savings account. She learned to live on half her pay and save the rest, and she has great Financial Well-Being because she feels so financially secure.

GMJ: Can companies set up positive defaults? And if they do, does it benefit the company?

Dr. Harter: Some organizations have set up healthier options in their dining areas so that employees not only have more healthy choices and fewer bad ones, but they also have posted nutrition information to help employees make decisions that are more informed. And a healthier employee base is better for companies in a lot of ways.

Rath: Some new studies show that the little decisions you make each day will have a big impact. It's nearing noon here in Washington, D.C. right now, and I'm trying to figure out where to go for lunch. The decision I make about where to go is probably much more important than what I decide to order when I get there. The studies show that if I decide to go to the burger joint because they just put a side salad on the menu, I'll use that as an excuse to go there because I'll tell myself I'll get the salad instead of the fries. But I'm more likely to order the burger and fries at the last minute. So if you can get ahead of your own instincts and go someplace where you won't be tempted to order the burger and fries, then it helps you to make better last-minute decisions.

Dr. Harter: It's easy to say that a burger isn't going to give me a heart attack today, so I can have it. But if you say that every day, a heart attack is what might happen.

Rath: I think we greatly underestimate how many times we give in and do things that are probably not in the best interests of our long-term well-being.

Dr. Harter: I'd go further and say we underestimate what's in the best interests of our daily well-being.

-- Interviewed by Jennifer Robison

In Part Three of this series, Rath and Harter explore Physical Well-Being and Community Well-Being.

The Five Essential Elements of Well-Being

For more than 50 years, Gallup scientists have been exploring the demands of a life well-lived. More recently, in partnership with leading economists, psychologists, and other acclaimed scientists, Gallup has uncovered the common elements of well-being that transcend countries and cultures. This research revealed the universal elements of well-being that differentiate a thriving life from one spent suffering. They represent five broad categories that are essential to most people:

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