WSJ: Bank Balance better predictor of happiness than Total Wealth

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grog
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WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by grog » Tue Sep 13, 2016 2:15 pm

Based on an analysis of a survey of bank customers in the UK,
We find a very interesting effect: that the amount of money you have in your bank account right now is a better predictor of happiness than your aggregate wealth. Having more money in their bank account makes people feel more financially secure, which leads to an increase in happiness.

That makes sense for the poorest 50% in the study, but it’s surprising that it’s still the case for the richest 50%. Even for a very wealthy person who has lots of savings and investments, having more money in their checking account seems to increase their happiness.

It is just a correlational study, so we don’t study the reasons for this. But we can hypothesize that when money is tied up in a pension or investments, it feels more abstract and inaccessible. Going to the ATM and seeing a large balance available feels more important to people.
The same Cambridge researcher has another paper about spending and happiness in relation to personality (as measured by "the Big Five"). Other researchers have suggested that people generally derive more satisfaction from "experiences" over "stuff." This suggests these preferences vary by personality. When asked if that isn't a somewhat obvious result, the researcher responds:
No. If you ask people what would make them happier, they often give a normative response; in other words, what should make them happy. But what we show is that what fits with socially desirable behavior may not be what makes you happy.

Often, our behavior is driven by what other people are doing. People are not always good at listening to who they are as individuals and behaving in ways that respond to those individual traits.

The next stage of this research will be to look at why some people are better at this than others.
Link:

http://www.wsj.com/articles/the-more-ca ... 1473645781

The article links an earlier article discussing similar research about the relationship between wealth and happiness.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by RadAudit » Wed Sep 14, 2016 9:11 am

grog wrote:We find a very interesting effect: that the amount of money you have in your bank account right now is a better predictor of happiness than your aggregate wealth.
Who funded this study?
grog wrote:It is just a correlational study,
More than likely.
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by nedsaid » Wed Sep 14, 2016 11:30 am

This makes sense. You can have wealth tied up in illiquid assets like Real Estate but the money tied up therein is not so easily accessed. For example, after the 2008-2009 financial crisis, one would have found the lending standards considerably tightened and taking out equity with a bank loan became much more difficult. Nothing like good old fashioned money in the bank that is easily accessible when you need it.
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by bigred77 » Wed Sep 14, 2016 12:45 pm

I think a big part of this is money in your savings/checking account comes much closer to being "tangible". You know you can write a check or go to an ATM for near immediate access.

I often find personal finance to be kind of like video games I played growing up. Its just a number on a screen. The goal is to maximize my "score" or that number on my spreadsheet.

I can't even imagine pre-internet days when you had to mail a check or wire funds to a broker and received paper statements. I think that would have made it harder for me to stick to a disciplined saving/investment plan. It just seems like it would be so nebulous.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Tamalak » Wed Sep 14, 2016 12:47 pm

This is reinforcing my recent inclination to move from 100/0 stocks/bonds to 80/20 (I would consider bonds to be 'money' psychologically).

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by lack_ey » Wed Sep 14, 2016 12:51 pm

It is just a correlational study,
Maybe if you have a lot of money in bank accounts, you think you already have enough (i.e. are satisfied, whether it makes sense or not) and are not obsessing over trying to earn money on money?

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by theDON2050 » Wed Sep 14, 2016 1:19 pm

This study is pretty much telling us humans aren't homo-economicus, whereas, I believe most bogleheads are very rational. Full disclosure: stop reading halfway through :)

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by CajunDan » Wed Sep 14, 2016 1:28 pm

Tamalak wrote:This is reinforcing my recent inclination to move from 100/0 stocks/bonds to 80/20 (I would consider bonds to be 'money' psychologically).

Your instincts are good, follow them, 80/20 is much more comfortable than 100/0, with similar performance over the past 50 years or so according to Portfolio Visualizer. 100/0 has a slightly higher return but with much more risk than 80/20, which gives 80/20 a higher risk-adjusted return and better Sharpe ratio: https://www.portfoliovisualizer.com/bac ... sisResults

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Meg77 » Wed Sep 14, 2016 1:55 pm

I think this makes total sense. As a banker, I see this a lot and also anecdotally notice it a lot among friends and even people on this forum. Many people have more than enough in their checking accounts to pay off at least one of their loans - a car loan, student loan, even a mortgage or two. But they keep the debt in order to have higher cash balances because they simply feel good having cash in the bank I suppose.

Rationally - economically - this makes no sense. But just look at the words we use to describe cash deposits: "emergency funds" or "savings cushion" or "safety net." Obviously we equate security with cash balances as a culture. I don't believe security/safety is required for happiness or the same as happiness, but it's a fundamental need of human beings. And therefore if it is unmet it stands to reason that you are more likely to be unhappy.
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Rainmaker41 » Wed Sep 14, 2016 2:05 pm

Interesting. I know a couple years back when things were rough for me income-wise out of college I measured the degree to which I was failing/succeeding by the direction and rate of change in my savings account balance. First down, down, down, then stable-ish, then gradually clawing back up. Now I've diversified into actually investing for retirement, which is 'rational', but I have to say that I still get more 'comfort' from my savings account. Maybe it has to do with money providing short-term security, which might have more impact emotionally than the nebulous matter of retiring 'some day'.

Maybe I'm just paranoid that cash on hand is essential. But it can't be paranoia if that's true... in my experience anyway... right? :confused
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Abe » Wed Sep 14, 2016 2:58 pm

I think it's true because I just wrote a check for my tax estimate, and I'm not as happy as I was. :happy
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by corwin » Wed Sep 14, 2016 3:10 pm

This fits with a pet theory of mine: At any given time we are all living "above" or "below" our lives. Those living "above" are doing everything they think they ought to be doing. In fact, they have extra time, money, goodwill and they are trying to decide what to do with the overage. Those "below" are just the opposite and can never seem to catch up. But the line of our lives is relative to each person. I can be living far below mine and still look down on someone living above theirs. The line is also relative to our time in life. I can look back on times in my life when I felt very secure and realize now how much risk I was actually carrying.

Having money in my bank account means I am living above my line. I could be deluded and that money really should be elsewhere (like paying off debt). But at that moment I am quite content.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by bayview » Wed Sep 14, 2016 8:36 pm

We barely have more than $200 in our checking accounts at any given time. :D EVERYTHING goes into savings. If something comes up, we grudgingly pull it out from the savings. But we don't keep money unnecessarily in pitiful checking.

I remember once finding an ATM slip at the local gas-beer-live bait store, showing a balance of over $30,000. I was dumbfounded that anyone would have that much cash just sitting there.
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by TOJ » Wed Sep 14, 2016 9:10 pm

bayview wrote:We barely have more than $200 in our checking accounts at any given time. :D EVERYTHING goes into savings. If something comes up, we grudgingly pull it out from the savings. But we don't keep money unnecessarily in pitiful checking.

I remember once finding an ATM slip at the local gas-beer-live bait store, showing a balance of over $30,000. I was dumbfounded that anyone would have that much cash just sitting there.
I actually agree with the article on this. It's great to not have to grudgingly do anything to cover incidentals. I suspect people who are less anal about maximizing return are happier than obsessives.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Kalo » Wed Sep 14, 2016 9:14 pm

From the WSJ Article: "It is just a correlational study, so we don’t study the reasons for this. But we can hypothesize that when money is tied up in a pension or investments, it feels more abstract and inaccessible. Going to the ATM and seeing a large balance available feels more important to people."

I can also hypothesize that even the wealthy people with low bank balances may be going through some kind of financial turmoil that is causing their bank balances to be low and also decreasing their level of happiness. But we can't know from these studies.

Kalo
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by AlohaJoe » Wed Sep 14, 2016 9:41 pm

bayview wrote:We barely have more than $200 in our checking accounts at any given time. :D EVERYTHING goes into savings. If something comes up, we grudgingly pull it out from the savings. But we don't keep money unnecessarily in pitiful checking.
The article isn't about keeping money in a checking account.
"cash on hand"-the balance of one's checking and savings accounts [...] Individuals with higher liquid wealth
You talk about putting it into savings -- which I assume is distinct from investments -- so it sounds like you're doing the same thing as the people in the study, keeping it in liquid wealth.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by KlangFool » Wed Sep 14, 2016 10:07 pm

bayview wrote:We barely have more than $200 in our checking accounts at any given time. :D EVERYTHING goes into savings. If something comes up, we grudgingly pull it out from the savings. But we don't keep money unnecessarily in pitiful checking.

I remember once finding an ATM slip at the local gas-beer-live bait store, showing a balance of over $30,000. I was dumbfounded that anyone would have that much cash just sitting there.
bayview,

I have 3 months of expense in my checking account. Another 9 months in my money market account. Essentially, I have one year of expense in cash earning nothing. I won't mind having that much cash earning anything.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Artsdoctor » Thu Sep 15, 2016 9:51 am

I read this article and chuckled. It certainly rang true with me.

I realize intellectually that I can get my hands on cash by simply selling investments in my taxable account. I know it, and yet I just don't like it.

I always keep cash around. Granted, I'll search out the highest online savings account to do it, but it's cash. I like the liquidity, and I like the security of knowing it's there. And at the end of the day, it really does come down to getting a good night's sleep.

It's not a lot, mind you. I guess if you put the whole thing together, cash would make up no more than 2% of the entire portfolio of investable assets. I realize there's an opportunity cost involved but it's not much. Jack Bogle always talks about "funny money" and giving people license to use up to 5% of a portfolio on crazy things, "if you must." So I don't think that I'm too far off base if I view my cash as my investment vice. :beer

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Ninegrams » Thu Sep 15, 2016 12:57 pm

This reminds me of a saying which goes something like this, "It's far better to have a little money vs no money, than to have a lot of money vs a little money". Being debt-free with money in the bank is a very good feeling, it's a pity more don't try it.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by sixty40 » Sat Sep 17, 2016 8:21 pm

bayview wrote:We barely have more than $200 in our checking accounts at any given time. :D EVERYTHING goes into savings. If something comes up, we grudgingly pull it out from the savings. But we don't keep money unnecessarily in pitiful checking.

I remember once finding an ATM slip at the local gas-beer-live bait store, showing a balance of over $30,000. I was dumbfounded that anyone would have that much cash just sitting there.
$30k in checking that may have been my a slip :D . Except I have not been to a bait shop for a while. I keep a decent checking balance in the $20k range. I use to keep less but got tired of transferring money from savings. So now all checks get deposited into checking then will transfer into savings as needed. I rarely ever need to take money from savings. It works for me.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Boglegrappler » Sat Sep 17, 2016 8:43 pm

The explanation for the study observation is almost certainly that many people, especially those of more modest means, have a great deal of their net worth in their homes.

Depending on your income, one of the less than desirable situations is to be in a house that is more valuable that you need it to be. It requires higher maintenance costs and higher property taxes, and it strains your income.

The study conclusion doesn't hold water if the major component of total wealth is, for instance, the vanguard 500 index fund. That's clear fungible with your checking account. Your home equity isn't.

I have my own personal idea of wealth and adequate financial assets, and it relates to having a multiple of your home value in liquid investment assets.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Dimitri » Sat Sep 17, 2016 8:47 pm

I think we have all heard it -- Cash is King. I believe it. Cash is comfortable. You can put your hands on it. It is real. Numbers on the screen. Are they real? Yes, but in a different way. There is a safety to having actual tangible cash on hand. I'm talking money in your wallet or purse, money in the sock drawer. That is real. If you have reason to go somewhere now that is money that you can take with you (along with your gold/jewelry/other transportable items that have value). The digital money that you see on the screen - not so (power down - you have no money). But if the grid is up I'll certainly agree that cash that is minutes (local bank) or a couple of days (online bank) away is something that makes one happy. It is nice to feel secure. Money in the market? No so secure. Money in the bank doesn't decline 22.61% on any given day (ref DJIA Oct 19, 1987).
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Yesterdaysnews » Sun Sep 18, 2016 12:23 pm

Interesting perspective. I would agree having a lot of cash in the bank feels good, but not too much either. When you have too much sitting in the bank and you see the market go up steadily, you start to feel like you are missing out on all those gains.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by celia » Sun Sep 18, 2016 12:55 pm

We find a very interesting effect: that the amount of money you have in your bank account right now is a better predictor of happiness than your aggregate wealth. Having more money in their bank account makes people feel more financially secure, which leads to an increase in happiness.
This is an assumption on the researchers' part since they started out with:
We wanted to look at the fundamental question: To what extent can money lead to happiness? And does money tied up in a nonliquid form provide the same happiness as money that is available to spend?
It seems to me, that they didn't even consider that people who were naturally happier would tend to save more or have greater assets. I'm not disagreeing that there is a correlation, but it doesn't necessarily mean money or happiness is the cause of the other. Possibly neither one causes the other.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by delamer » Sun Sep 18, 2016 1:34 pm

Our tax rate on withdrawals from investments is either 23% or 36%, depending on the type of account (taxable versus tax-deferred). So in one sense, a dollar withdrawn from checking is more valuable than a dollar withdrawn from investments. I can spend the whole dollar taken from checking, but only 77 cents or 64 cents taken from investments.

It does make us think twice about spending from investments, for better or worse.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by AlohaJoe » Mon Sep 19, 2016 4:45 am

Boglegrappler wrote:The study conclusion doesn't hold water if the major component of total wealth is, for instance, the vanguard 500 index fund. That's clear fungible with your checking account. Your home equity isn't.
Home equity (and mortgages) were explicitly excluded. The situation you describe is not possible with their study. You can't have "high net worth" based on home equity.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by pascalwager » Tue Sep 20, 2016 1:16 am

sixty40 wrote:
bayview wrote:We barely have more than $200 in our checking accounts at any given time. :D EVERYTHING goes into savings. If something comes up, we grudgingly pull it out from the savings. But we don't keep money unnecessarily in pitiful checking.

I remember once finding an ATM slip at the local gas-beer-live bait store, showing a balance of over $30,000. I was dumbfounded that anyone would have that much cash just sitting there.
$30k in checking that may have been my a slip :D . Except I have not been to a bait shop for a while. I keep a decent checking balance in the $20k range. I use to keep less but got tired of transferring money from savings. So now all checks get deposited into checking then will transfer into savings as needed. I rarely ever need to take money from savings. It works for me.
Functioning with only $200 in checking is amazing! I assume the savings account is at the same bank for quick, easy online transfers. But the savings rate is probably much lower than for certain online banks which don't also offer checking accounts.

Like sixty40, I also keep over $20k in checking. It doesn't make me happy, but averts worries about overdrafts. If I wasn't bumping up against the FDIC limit in my online bank savings, then I might try working my local bank checking down closer to $10k. Actually, I consider my savings/checking to be the major part of my ballast. (My portfolio isn't defined by stocks and bonds, but rather by stocks and ballast.)

I recall an expression from my youth: "Loaded for bear!" For me this suggests the sheer power and utility of a sizable checking account.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by daveydoo » Tue Sep 20, 2016 1:40 am

This is nuts. Who, rich or poor, keeps a lot of money in a bank account?? Certainly not the wealthy. Association does not equal causation. "Research" like this gives real research a bad name.
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by pascalwager » Tue Sep 20, 2016 2:04 am

daveydoo wrote:This is nuts. Who, rich or poor, keeps a lot of money in a bank account?? Certainly not the wealthy. Association does not equal causation. "Research" like this gives real research a bad name.
The current weighted yield of combined (to shorten duration) one-half VG short-term Treasury and one-half VG intermediate-term Treasury funds is 1.05%, the same as some online bank savings accounts, which don't have the bonds interest rate risk. Some wealthy have their ballast spread between many banks in savings and CDs.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by AlohaJoe » Tue Sep 20, 2016 2:10 am

daveydoo wrote:Who, rich or poor, keeps a lot of money in a bank account?? Certainly not the wealthy. Association does not equal causation. "Research" like this gives real research a bad name.
The paper doesn't say anything about "keeping a lot of money in a bank account". Your comment doesn't seem to have any relation to the paper I read. Have you read it?
Our findings thus highlight the importance of holding a minimal financial buffer, but also the relative unimportance of having wealth above sufficiency levels
In conclusion, while our correlational data do not permit causal inferences, we find that immediate access to money plays a unique role in explaining the relationship between money and life satisfaction, above and beyond earnings, investments, and indebtedness.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by daveydoo » Tue Sep 20, 2016 2:13 am

pascalwager wrote: The current weighted yield of combined (to shorten duration) one-half VG short-term Treasury and one-half VG intermediate-term Treasury funds is 1.05%, the same as some online bank savings accounts, which don't have the bonds interest rate risk.
True, but pretty sure this wasn't who they were talking about in this sampling. And given the FDIC limit, there's a lot of swapping in and out of the various online banks -- and there are only a handful that offer those rates.

The implication that selling a bunch of my mutual funds so I could be happier with a bigger cash balance in my checking account is the part I referred to as "nuts." Anyone with money could do this any day of the week -- how are we overlooking this terrific opportunity for true happiness? I know how much I have -- and whether it's in my wallet or in my shoe, it really won't make me any happier. This is where an association study is so out in left field that you know it's not causation.
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by daveydoo » Tue Sep 20, 2016 2:20 am

AlohaJoe wrote: The paper doesn't say anything about "keeping a lot of money in a bank account". Your comment doesn't seem to have any relation to the paper I read. Have you read it?
Our findings thus highlight the importance of holding a minimal financial buffer, but also the relative unimportance of having wealth above sufficiency levels
In conclusion, while our correlational data do not permit causal inferences, we find that immediate access to money plays a unique role in explaining the relationship between money and life satisfaction, above and beyond earnings, investments, and indebtedness.
Hate to say it, but I don't need to. You're quoting the authors' interpretation, which has little to do with the data. And because I know that this is not a randomized controlled trial (i.e., the authors didn't prospectively make a random half of the study population rich and then sit back to see what happens), I know the conclusions are a meaningless over-reach. I review a lot of [stuff] like this, professionally. Writing "papers" like this is the easiest thing in the world. Shopping at Tiffany's makes you rich; shopping at WalMart makes you poor. Therefore, everyone should shop at Tiffany's. I haven't proved it, per se, but it's plain as day.
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Boglegrappler » Wed Sep 21, 2016 4:43 pm

by AlohaJoe » Mon Sep 19, 2016 4:45 am
Boglegrappler wrote:
The study conclusion doesn't hold water if the major component of total wealth is, for instance, the vanguard 500 index fund. That's clear fungible with your checking account. Your home equity isn't.

Home equity (and mortgages) were explicitly excluded. The situation you describe is not possible with their study. You can't have "high net worth" based on home equity.
Forgive me but I cannot find the level of description of the study that you must be able to. In fact, the abstract in the link in the WSJ article actually implies that the study isn't looking at net worth, but rather "income". I'm ready for some enlightenment. Here's the study description in the abstract from the link I followed:
Could liquid wealth, or "cash on hand"-the balance of one's checking and savings accounts-be a better predictor of life satisfaction than income?


http://www.ncbi.nlm.nih.gov/pubmed/27064287

I'm not seeing anything about excluding home equity.....or really much of anything about how the study was conducted. Not interested in being contentious, but I do like facts. Edit further: below is a link to the actual study.

http://sonjalyubomirsky.com/files/2012/ ... -press.pdf

Not all that impressed with it, I guess.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by AlohaJoe » Wed Sep 21, 2016 10:01 pm

Boglegrappler wrote:Forgive me but I cannot find the level of description of the study that you must be able to. In fact, the abstract in the link in the WSJ article actually implies that the study isn't looking at net worth, but rather "income".
I read the study and not just the abstract or a news report on it.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Boglegrappler » Thu Sep 22, 2016 6:18 pm

I posted the link to what seems to me to be the study.

Comments apply as written.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by LarryAllen » Thu Sep 22, 2016 7:17 pm

daveydoo wrote:This is nuts. Who, rich or poor, keeps a lot of money in a bank account?? Certainly not the wealthy. Association does not equal causation. "Research" like this gives real research a bad name.
I keep what you might consider a lot in my checking account which often is between $40-50k. However, percentage wise to total assets it's a small amount. We spend $30-40k a month so often have $40k or $50k in there... at least for a few days. Percentage wise it's not a large percentage of our assets though. So it's all relative.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Johnnie » Thu Sep 22, 2016 8:06 pm

I don't know how meaningful the study may be but I find the concept of happiness related to "immediate access to money" interesting. I can relate, and I think it's important to pay as much attention to happiness as portfolio balances.

One thought: "Immediate access to money" means different things to different people. For most bogleheads electronic images of numbers and letters symbolizing balances in short term bond funds probably meet the criteria. For others it means greenbacks in the mattress and gold coins under the orchard.

Money in FDIC insured accounts you can write checks on or access as greenbacks at local bank branches falls somewhere between those. Laddered CDs in six-month increments a next step.
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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by Boglegrappler » Thu Sep 22, 2016 8:31 pm

Here's a quote from the introduction.
Our results suggest that having readily- accessible sources of cash is of unique importance to life satisfaction, above and beyond raw earnings, investments, or indebtedness. Therefore, to improve the well-being of citizens, policymakers should focus not just on boosting incomes but also on increasing people’s immediate access to money.
Is there something amiss in academia? If my income goes up, so does my "immediate access to money". In any case, its pretty clear that these "researchers" aren't in the Boglehead mode.

I am, however, eagerly awaiting the next policymaker decision that will boost my income. 8-)

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by littlebird » Thu Sep 22, 2016 8:35 pm

bigred77 wrote:I can't even imagine pre-internet days when you had to mail a check or wire funds to a broker and received paper statements. I think that would have made it harder for me to stick to a disciplined saving/investment plan. It just seems like it would be so nebulous.
I can assure you that paper statements were very tangible indeed.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by jwillis77373 » Fri Sep 23, 2016 8:46 am

Funny study..

I tend to think the opposite.

The more accessible the money.. the more likely it will find an emergency or excuse to be gone sooner than later.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by soboggled » Fri Sep 23, 2016 9:01 am

Such correlational studies are always full of holes. For example, cash may inversely correlate to spending. Maybe people who have a lot of cash are more easily meeting their daily financial expenses than those who have less, or just have less desire or need for material goods or just can spend less. Or maybe healthy people are going to be on average happier than unhealthy people and they are also more likely to have more cash because they don't have to pay high out-of-pocket medical costs. Etc. Etc. Etc.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by grog » Fri Sep 23, 2016 3:07 pm

soboggled wrote:Such correlational studies are always full of holes. For example, cash may inversely correlate to spending. Maybe people who have a lot of cash are more easily meeting their daily financial expenses than those who have less, or just have less desire or need for material goods or just can spend less. Or maybe healthy people are going to be on average happier than unhealthy people and they are also more likely to have more cash because they don't have to pay high out-of-pocket medical costs. Etc. Etc. Etc.
It's psychology research that was picked up by the popular press which makes it immediately suspect, I agree. But I would have guessed there would not be any correlation for people with a decent overall financial position.

It may be that the correlation reported here is unlikely to hold up out of sample. You'd need to look at other datasets to see if it's robust and how dependent it is on different covariates. But if confirmed I think it would be a somewhat interesting result whether it's directly causal or driven by various lifestyle or personality factors (like the type of people that prefer to hold more cash just tend to have higher self-reported happiness). If it were indeed causal the question then arises that if holding more cash could make people happier and they are free to hold more cash, then why wouldn't they just hold more cash? Moreover in the long term holding less cash now can improve your returns and allow you to hold more cash later. So even if you love cash, if you have low time preference that still might push you toward putting money in long term assets rather than cash.

P.S. I would note that spending appears to be one of the variables that was considered. They had account balance info and got income and spending from the banking data (deposits and withdrawals). Additionally in the survey they asked about investment accounts and debt levels.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by SGM » Fri Sep 23, 2016 5:01 pm

Periodically my checking account waxes and wanes as I spend it or reinvest. I have not owned a bank savings account in the last 37 years. I carry a balance in the checking account for any expenses that come up. It feels good to pay cash for items and have no debt. I pretty much stay 99.9% invested all the time. It is important to consider yourself happy. :D

I had a very happy uncle who kept cash in his pocket all the time in case he found an underpriced gold or silver coin which he did every Saturday at a minimum. He never paid more than bullion value for a coin and always paid cash.

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Re: WSJ: Bank Balance better predictor of happiness than Total Wealth

Post by ruralavalon » Sat Sep 24, 2016 3:57 pm

Meg77 wrote:I think this makes total sense. As a banker, I see this a lot and also anecdotally notice it a lot among friends and even people on this forum. Many people have more than enough in their checking accounts to pay off at least one of their loans - a car loan, student loan, even a mortgage or two. But they keep the debt in order to have higher cash balances because they simply feel good having cash in the bank I suppose.

Rationally - economically - this makes no sense. But just look at the words we use to describe cash deposits: "emergency funds" or "savings cushion" or "safety net." Obviously we equate security with cash balances as a culture. I don't believe security/safety is required for happiness or the same as happiness, but it's a fundamental need of human beings. And therefore if it is unmet it stands to reason that you are more likely to be unhappy.
That, and also this --

perhaps if you put a lot of money in bank accounts that is because you think you already have enough in investments.
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