Investor Behavior: The Psychology of Financial Planning and Investing

CHAPTER 9

Money and Happiness: Implications for Investor Behavior

Jing Jian Xiao

Professor, University of Rhode Island

INTRODUCTION

Can money buy happiness? A clear definition of these terms is necessary before researchers can answer this question. Money refers to income and related economic factors such as work, spending, and money attitudes. Besides micro level measurements, money can also be related to macroeconomic factors such as per capita gross domestic product (GDP), unemployment rate, inflation, income inequality, economic growth, and economic policies. Happiness is measured in various ways. One common measure of happiness is life satisfaction and others include having a positive mood on a daily basis and living a meaningful life.

The research literature on money and happiness suggests that money is important for achieving happiness. Specifically, a strong association exists between personal income and life satisfaction, especially when the income level increases from the low to middle level (Diener and Biswas-Diener 2002). This positive association diminishes when the income level continues to increase from the middle to high level. Country comparisons also show that money makes people happier. People in richer countries are generally happier than those in poorer countries. However, pursuing a materialist goal decreases happiness. Living a meaningful life and maintaining good social relationships with family members, friends, and colleagues increase happiness (Seligman ...