Kurt Vonnegut and novelist Joseph Heller were once allegedly at a party hosted by a billionaire hedge fund manager. Vonnegut mentioned that their wealthy host made more money in one day than Heller ever made from his novel Catch-22.
Heller responded: "Yes, but I have something he will never have: enough."
Whether it's true or not, I've always thought this to be one of the smartest finance stories ever told.
All throughout college, I had one career plan: investment banking. The industry was attractive to me, and thousands of other students blinded by a lack of life experience, for one reason: You can make a lot of money. Six figures right out of school, and millions later in your career.
There's just one catch. Your life becomes abjectly miserable.
One-hundred-hour work weeks, the most pressure you've ever experienced, and less exposure to sunlight than death row inmates. They had a saying: "If you don't come to work on Saturday, don't bother coming back on Sunday." The senior bosses were worth millions, but stressed, overweight, anxious, never saw their kids, and hadn't taken a vacation in years -- I'm unfairly generalizing, but only slightly. Almost no one actually enjoys it. I quickly cried uncle, moved on, and never looked back.
In his book 30 Lessons for Living, gerontologist Karl Pillemer interviewed 1,000 elderly Americans (most in their 80s and 90s), seeking wisdom from those with the most experience. One quote from the book stuck out:
No one -- not a single person out of a thousand -- said that to be happy you should try to work as hard as you can to make money to buy the things you want.
No one -- not a single person -- said it's important to be at least as wealthy as the people around you, and if you have more than they do it's real success.
No one -- not a single person -- said you should choose your work based on your desired future earning power.
The elderly didn't say that money isn't important. They didn't even rule out that more money might have made them happier. They just seemed to understand the concept of enough.
Studies show that money does increase happiness. The latest research shows there's not even a known satiation point -- a higher income makes virtually everyone happier, although each additional dollar delivers less happiness than the one before it.
But we tend to overestimate money's potential on our happiness by thinking of it out of context. Daniel Kahneman, a psychologist who won the Nobel Prize in economics, writes in the book This Will Make You Smarter:
On average, individuals with high incomes are in a better mood than people with lower income, but the difference is about a third as large as most people expect. When you think of rich and poor people, your thoughts are inevitably focused on circumstances in which income is important. But happiness depends on other factors more than it depends on income.
In other words, young investment bankers assume a big income will make them happier because they think about a nice house and fancy cars, not working until 4 a.m. and having no social life.
In a New York Times column three years ago, David Brooks put a twist on this thinking by analyzing the life of actress Sandra Bullock. He wrote:
Two things happened to Sandra Bullock this month. First, she won an Academy Award for best actress. Then came the news reports claiming that her husband is an adulterous jerk. So the philosophic question of the day is: Would you take that as a deal? Would you exchange a tremendous professional triumph for a severe personal blow?
"If you had to take more than three seconds to think about this question, you are absolutely crazy." Brooks concludes. But for the same reason investment bankers choose a miserable life while assuming money will make them happier, I'm willing to bet many otherwise happy people would have gladly changed shoes with Bullock three years ago. Research is clear that some things completely override any happiness that can be gained from money or work success. It's just hard to realize that because money is tangible, measurable, and universal, whereas the "other factors" Kahneman mentions that have a greater impact on our happiness are vague and nuanced.
What are those "other factors" Kahneman mentions?
The field of positive psychology studies what makes people happy. It's a young and constantly changing field, but researchers broadly agree that four major points have a big impact on making people happy:
- Control over what you're doing.
- Progress in what you're pursuing.
- Connections to other people.
- Having purpose and meaning.
You'll notice "more money" isn't on the list. But you can easily see how money ties into these points. Money can grant you freedom from a nine-to-five job, offering control over what you're doing. It can provide the tools necessary to achieve progress in whatever you're pursuing. It can afford you time off to and a chance to spend time with other people. It can give you the ability to provide for people other than yourself, bringing meaning and purpose. To the extent that money can buy happiness, most of us would do better to think of how it can help us achieve these four points.
Everyone is different, though. So I want to ask you: How much is enough money? Are you there? Will you ever get there? Do you even want to? Share your thoughts in the comment section below.
Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.