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News Flash: Money Does Buy Happiness!

How many times have you been reminded by Aunt Mabel that "money doesn't buy happiness, dear"? Well, you can finally set Aunt Mabel straight. According to researchers from Penn State and Harvard, it seems that money can buy happiness -- sort of. (Note that the best predictor of happiness, trumping money, is good physical health. But I digress.)

The findings suggest that if your household earns, say, $80,000 per year and you live in a neighborhood where incomes are in the six-figure range, you're likely to be less happy than if you lived in an area where incomes were in the $30,000 to $50,000 range. It makes some sense, if you think about it.

We humans tend to judge ourselves by the people surrounding us. If our neighbors (or coworkers or friends) generally have a higher standard of living, with fancier cars, bigger homes, more expensive outdoor grills, and so on, we may end up feeling financially inferior. If, on the other hand, we are the ones with the fancier trappings, we're likely to feel more financially successful.

Instead of becoming a consumer of Tag Heuer watches by LVMH Moet Hennessy LV (Nasdaq: LVMHY  ) or Lexus automobiles by Toyota (NYSE: TM  ) or Tiffany (NYSE: TIF  ) jewelry, you might consider investing in such companies instead. Not necessarily these companies exactly (though Tiffany, for one, is doing well) -- my point is just that instead of aiming to spend your money on higher-end items, you might deploy some of that cash into high-quality stocks. Then you can watch your investments grow instead of depreciate, which they'll have a decent chance of doing. Household name companies such as PepsiCo (NYSE: PEP  ) and Procter & Gamble (NYSE: PG  ) have been terrific long-term wealth builders. PepsiCo has advanced more than 2,000% over the past 20 years, excluding dividends. P&G has advanced more than 5,000% over the past 25 years, also excluding dividends. Both of these have averaged around 17% per year.

Approaching happiness from a wider angle is an article at the website of the Center for Independent Studies. It addressed the happiness of people in different countries and economies, explaining that, "There is an extremely strong correlation between wealth and happiness. Low-income countries report low levels of happiness, middle-income countries report middle levels and high-income countries report high levels. What the researchers say, though, is that this correlation levels off at a national income of about $10,000 a year. After $20,000 ... [British economist Richard] Layard says, 'additional income is not associated with extra happiness.'" It noted that, "Since the 1950s, income in Japan increased almost 10-fold, but the Japanese are no happier today than they were then."

One insight that rang very true to me is that hope is an important contributor to happiness. If you're in a situation or country where you have little or no hope to improve your lot, you'll be more unhappy than if you were just as poor or rich, but knew you had opportunities to get wealthier.

Fortunately, we Fools have plenty of hope. Fools can make their lives happier by building more wealth and financial comfort for themselves. Our Rule Your Retirement newsletter, for example, offers a lot of practical guidance to help you set yourself up for a comfy and enjoyable retirement, as well as specific investment recommendations. Try it for free and see for yourself.

LongtimeFoolcontributorSelena Maranjianowns shares of PepsiCo. The Motley Fool has a disclosure policy. The Fool has an ironclad disclosure policy.

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