Money Buys Happiness. Kinda...

Money Buys Happiness. Kinda...

I was recently asked to submit some thoughts to Bloomberg for an article they were writing in their personal finance newsletter. The article was asking the question:

"I live in an expensive city and am thinking of moving somewhere with a lower cost of living. Is that a good idea? What are the financial and other factors I should be considering to make the decision?"

I had just been talking about this with a client considering a move, but in the opposite direction. More on that in a minute.

When I read the question, the "financial factors" didn't register as important at all. If you live in an expensive city and are moving to a place with a lower cost of living, then the financial factors seem settled to me, aren't they? Lower cost of living = more money left over to save and invest or fund other passions or projects you might want to pursue.

This of course assumes that your income is remaining the same. The only question related to finances that might need to be considered in this scenario is whether or not your new low cost city also comes with a new lower salary.

Some companies compensate their employees based on where they live. Especially now in this "work from home/hybrid" working world we find ourselves in.

But I don't think reasonable people would trade a high cost of living for a lower one if the salary coming with it would put them in a worse financial position. Even if that difference was minor. That would trading down so to speak. Wouldn't it be???

Unless there was something else that comes along with the less well off financial position drawing you to that new low cost place.

And those other things usually have nothing to do with money.

It's the other factors that would be critical to work out. But what are they and how do you use them to make an important life decision, asses your current financial situation or guide you in the future, financially or otherwise?

Insert the 4 C's of Contentment:

In a number of the behavioral sciences, in neurology and other fields there is a lot of work done focused on Happiness and Contentment. The C's are what tend to present themselves most often when people are asked where their happiness comes from.

I learned the concept as "The Four C's of Contentment" from Shaping Wealth and a team led by Brian Portnoy who wrote the book, "The Geometry of Wealth: How to Shape a Life of Money and Meaning."

The high level is this:

When people report being happy and feeling a high level of contentment, they tend to relate how they feel to things like:

  • Having a sense of Control over one's life.
  • Being a part of a supportive Community.
  • Having deep, meaningful, personal Connections with other human beings.
  • Being Competent in their chosen field of work or study.
  • Feeling like you are making a Contribution to the world around you.
  • Taking good Care of your mind and body, feeling good physically.
  • I have even seen Cook listed as one of the C's. Meaning being able to provide healthy food for yourself and your family leads to happiness.

The point being, people don't relate how happy they feel to the money they have, at least not as a primary factor. Assuming they have their needs met of course. It's been well researched that money can buy happiness, especially when it's providing for your basic needs and therefore a sense of security. As people make more money, their reported quality of life increases as well. But only to a point.

In "The Geometry of Wealth" Brian asks the question, does money buy happiness? His answer? "Yes. Not Really. It Depends."

At a certain amount of wealth, usually around where people's basic needs are met, an increase in income & wealth stops correlating to an increase in happiness and you see things trail off.

Nobel prize winning behavioral economist Daniel Kahnemen along with Angus Deaton published a study in 201o titled...

"High income improves evaluation of life but not emotional well-being".

What they found is that money can be very helpful in improving a persons reported evaluation of life experience. However, somewhere around $75,000 a year in annual salary the benefits of making more money stop correlating with more reported happiness or as they put it "Emotional Well-being".

"When plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ∼$75,000"

But what will continue to increase happiness once you are making enough money to cover what you need? That question is a lot less well understood then what Khaneman and Deaton were able to study.

However, what seems to bring people a continued increase in happiness is when they can cultivate and grow their happiness in other ways. It's the "Emotional Well-being" stuff that Kahneman and Deaton referenced in their study.

You guessed it, it tends to relate to a lot of things that start with the letter C.

People who live in Communities they feel Connected to. When they feel Competent in their profession and are valued for the Contribution they are making at work, in their chosen field or the world. When these things are aligned with our values, it brings a sense of purpose and meaning to our lives...

...We are Happier and we feel Fulfilled.

Making a decision to move and having the freedom and flexibility to do so can certainly give us a sense of Control in our lives. Does the new location bring with it a Community you want to be a part of? Or will your new role professionally allow you to showcase your Competency? Will you be able to keep the Connections you have with the important people in your lives and make new ones?

If the answer is Yes AND it's less expensive, then the move is almost a no-brainer.

What about a slightly different scenario. Let's assume the new place is MORE expensive and therefore you'd be slightly less well off financially in moving there. But it brings with it an amazing community or new job that really excites you. Should you be so quick to say no due to the higher rent?

The client I mentioned working with earlier is considering a move from Boston to NYC. She is a medical professional and does well, but she is often anxious that she isn't making enough money or saving and investing enough for her future.

So I was surprised when she told me she was excited about a potential move to NYC. Boston is an expensive place to live to begin with. However, moving to NYC was going to increase her cost of living not lower it.

But then I asked her what she was excited about and shit lit up.

She described a new role at a hospital she was interviewing for. She talked about the great people she'd be working with (community/connection) and how the role would allow her to use her unique skills (competency) in a way that would make a difference on her new team, for the hospital and most importantly her patients (contribution).

If she gets the new job, it will bring with it a higher salary. But probably not high enough to negate the higher cost of living. So why move?

When thinking about her move through the lens of what was going to give her a greater sense of purpose and make her feel strongly about the work she was doing, all of a sudden this cost conscious individual was "excited for the new adventure".

She might be less well off financially, but she'll be happier. And isn't that what's most important?

So should you move to a less expensive city? I don't know, maybe. I'll quote Brian Portnoy one more time and say "It depends". And it depends on a lot of things other than money.