At the Money: Can You Have Too Much Money?

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0:57Money doesn't automatically lead to happiness. Our relationship with money is complicated. Speak to someone at the bottom of the economic ladder and they will tell you in no uncertain terms that a lack of money can lead to misery. But speak to enough millionaires and billionaires, and it's pretty clear that money doesn't automatically lead to happiness. As it turns out, money buys you a little bit of happiness, but only up to a point. And on today's edition of At The Money, we're going to discuss how and why money can buy you happiness. To help us unpack all of this and what it means for your financial health, let's bring in Brian Portnoy.

1:42He is the author of The Geometry of Wealth, How to Shape a Life of Money and Meaning. Okay, we'll start with an easy enough question. Does money buy happiness? Let me give you a very simple, clear answer. Yes, no, maybe, sort of, not really, kind of. Okay, I get that. So you're saying it's complicated and it really depends on a lot of factors. Let's start really basic with Maslow's hierarchy of needs, safety, security, food, shelter, etc. Obviously, if you don't have those things, lack of money is certainly going to bring misery. So that's exactly the right place to start. Let's talk about the elimination of misery as distinct from the achievement of happiness.

2:32There's no doubt that money's most powerful impact on our emotional lives, our physical lives, is the elimination of misery. So we're built to survive. That's our evolutionary story. And money buys us shelter. It buys us food. It buys us warmth. It buys us safety. At a higher level, it can allow us to afford getting rid of aggravation or certain people you don't want to see or certain commutes you don't want to make. We can think of money as a way to mitigate or even eliminate sadness, disappointment, and misery. That is by far the most powerful relationship between money and a particular emotional state.

3:15So I've seen a couple of studies that look at where does money stop buying contentment, so to speak. And I know these are all from different eras, and so they may not be inflation-adjusted numbers. But one study says it peaks around 70K and then starts to roll off. That seems like in America that buys you shelter, food, clothing, health care, and maybe even some education. Then I've seen$300 ,000 and$500 ,000. Where does the marginal utility of each earned dollar really begin to matter less and less? So you've pointed accurately to a number of studies on this, and maybe it's$75 ,000 or$90 ,000.

3:57I'd also point out that a dollar spent in Manhattan, New York versus Manhattan, Kansas. Those are very different conversations. Let me intervene first, though, and say there's two different definitions of happiness that we should make sure are clear. One is sort of just the day-to-day, good mood, bad mood, having positive emotions. The other sort of happiness, going back to Aristotle, what he called eudaimonia, is a deeper source of meaning and contentment. As it relates to the first definition of happiness, you are correct. There's been study after study that shows that once you can afford the basics in life, having that marginal dollar isn't necessarily going to put you in a good mood or a bad mood.

4:40You're sort of wired with a certain disposition. And if you're a generally cheerful person, you're going to be that way. And if you're generally kind of dour or miserable, well, making hundreds of thousands of dollars a year aren't going to make an impact. I'd go to the second definition of what we call happiness. It's a difficult word. You go to the thesaurus. There's 30 different words for this thing. But we're going to talk about day-to-day happiness versus contentment, what Aristotle called eudaimonia. And there's some interesting research from Danny Kahneman and Angus Deaton that shows that if spent wisely, money can underwrite a meaningful life.

5:21And there are different sources of meaning in our lives. When spent wisely on certain types of experiences and relationships, money can very much be used effectively to lead a happier, better life. So let's talk a little bit about other people. there's a famous H.L. Mencken quote was once asked how do you define wealth and his answer was a hundred dollars more than my brother-in-law there's other studies that have asked people would you rather have I'm making up these numbers but their ballpark sixty thousand dollars when you live in a town when everybody else has fifty thousand dollars or would you prefer two hundred thousand dollars in a town where everybody else has three hundred thousand.

6:07I know what I would choose. I would take the latter. But that doesn't seem to be the answer that most people give. They say, well, I'd rather be the wealthiest guy in town at 60 K than the poorest guy in town at 100 K. Why is that? Explain why that behavior and belief system exists. And what does that mean for our satisfaction. Welcome to the human condition. Welcome to the evolutionary path that we've been on. Status matters, tribe matters, and these aren't trivial things. These are deep down genetic codes that we all live with. And so when we have a little bit more than others, we feel better than ourselves.

6:49And so you're absolutely right. The studies do show, and I don't have the exact numbers, but people would rather have$100 ,000 income when others are making$80 ,000 versus$150 ,000 income when others are making$200 ,000 a year. You and I might say, well, I'd prefer one versus the other. But the fact is that the preponderance of responses reflect the fact that we want to feel connected to our tribe and safe in our tribe. And when you have a little bit more than others, it can make you feel pretty good. go quote for quote, you gave me HLMAC and I'll give you the original JP Morgan. He said nothing corrupts your financial judgment more than the sight of your neighbor getting rich.

7:31Especially if your neighbor's an idiot, right? Or if your neighbor's JP Morgan. I have a very vivid recollection in the early days of house flipping in the 2000s, leading up to that, and the early days of crypto. I can't tell you how often I've heard people say, my neighbor is making all this money and that guy's a moron it's almost as if it's insult to injury what is it about seeing somebody else make a lot of money that gets our envy and greed uh buttons running yeah so i don't know whether to quote neuroscience or the bible go both ways because i bet they're related they are they are um you know they both speak to kind of who who we are as a human species.

8:16There's no getting around the fact that we feel envy or greed when others have more. I mean, I don't know if we need to provide a dissertation or Bible quotes to show why that's true. We just know that when others are getting ahead, we feel like we're falling behind. It's really important from a financial well-being point of view for people to have their own individual authentic goals, hopefully baked into some form of a financial plan, so that you feel like you're making progress toward the things that you've said matter to you and your loved ones, that can be used to mitigate some of these negative emotional impacts when it's just like, oh, I'm at the casino.

8:56I bet on black. He bet on red. He won. He's rich. I'm not. And you don't feel very good about yourself. That's not a great way to work your way through your financial life. So let's tie this together. Given the difference between the pursuit of happiness and the pursuit of contentment, what does this mean for how investors should think about pursuing gains in their portfolios? Investing outside of a well-defined financial plan is speculation. And that might not necessarily be a bad thing. You know, you like to pick stocks. I don't. Not anymore. I started, began on a trading desk. I take around with market timing is what I do, but that's just outside of professional.

9:41That's just in my own little stupid personal account. And by the way, that 2 % of my assets scratches such an itch, I can't begin to tell you. Yeah. It's why we advise advisors to allow some clients to have cowboy accounts. Yeah, absolutely. We'll manage 97 % of your assets, 3%, go wild, buy crypto, all this stuff. And one of the funny things with those sort of accounts is if they go to zero, who cares? It was 2 % of your assets. And if they triple, hey, they tripled because it was 2%. If it was actually all your money, you would never have been able to hold on that long. That's right. You would have taken, oh my God, I'm up 30%.

10:22I got to take some profits. And by the way, there's nothing wrong with being interested in the stock or bond market or in crypto or in any other market and seeing if you can deliver, bring your insight into picking better securities or better outcomes. However, if we're really thinking about the relationship between money and happiness, when you have a well-defined plan, it means that you're heading towards something. It could be your kid's college education. It could be a comfortable retirement. It could be a particular vacation that you have in mind. So you pick your goal and you invest accordingly.

11:03You build a portfolio. You have time horizons. You have risk tolerance. it's not as sexy or as provocative as playing the market, so to speak. But the conversation about money and happiness actually makes a lot more sense in the context of having well-defined goals. And the other stuff, it's kind of fun. But just let's call it what it is. It's not investing. It's speculating. Thanks, Brian. That's really interesting. You know, this idea of money buying happiness comes up all the time. It comes up in conversations with clients and friends and family. And I always like to point to the example of the opposite of money leading to satisfaction and contentment, something I call purposeless capital.

11:50Bill Huang ran the hedge fund Archegos Capital Management, and they very famously ran up a stake of a few billion dollars using leverage and very aggressive trading up to$20 billion before they ultimately just blew up. And I always suspected part of the reason that happened was because this was purposeless capital. There was no intent behind it. There was no plan to meet certain life goals, give money to philanthropy, build experiences with the family. It was just more for the sake of more. And as we've learned over time, sure, money doesn't always buy happiness, but if used right, it could buy experiences, you can help others, and it can bring a life of funded contentment if applied correctly.

12:57issues that matter most to you as an investor. I'm Barry Ritholtz. You've been listening to At The Money on Bloomberg Radio.