Why More Money Doesn't Mean More Happiness—And What Does With Daniel Crosby (EP.174)

0:28We all need to make smart decisions with our money. Crosby, a renowned behavioral finance expert, a psychologist, and the author of several books focused on investor behavior and the psychology of financial decisions. We're going to be discussing The Soul of Wealth, his latest book, which delves into how individuals can find meaning and happiness through their wealth. Daniel shares all sorts of great insights on how giving, investing in yourself, and avoiding social comparison can lead to greater fulfillment, and he provides actionable advice on developing habits and fostering relationships that contribute to a happier, wealthier life.

1:06As always, you can find show notes at thelongterminvestor.com. There you can sign up for my newsletter. You can find out more about working with me and browse the archives of past guests and past topics we've covered. And now let's dive into my conversation with Dr. Daniel Crosby. Daniel Crosby, welcome to The Long-Term Investor. Go Cardinals. Good to see you. Yeah, we're recording during baseball season, but we're also having this come out. Along with your new book, you've already authored several books aimed at helping investors understand their behavior, the behavior of financial markets, in order to optimize their personal financial outcomes.

1:51And here you've now written The Soul of Wealth. What was the inspiration behind writing this book? Well, the inspiration is the very thing you touched on nicely there. My first two books were really about helping people make better decisions with their money, maximize their returns, hang on to all they could through good behavior. And I think the good news is that because of my work, the work of many other people, the work of the giants whose shoulders I stand upon when I write my books, people are making better decisions. I think we have a better educated investing populace than we've ever had.

2:24People are doing better. It's not perfect, but they're getting there. But the next thing I noticed is that many of these people who do make these great decisions build considerable wealth, then just aren't happy with it. They aren't able to move from money to meaning. meaning Viktor Frankl, who's a bit of a professional hero of mine, he has this saying that I'll butcher, but says, evermore people have the means to live, but no meaning to live for. And I really observed that, that we're living in an era of unprecedented abundance and also unprecedented loneliness, despair, disconnection. And I wanted to try and say my piece about that.

3:07Well, you do a wonderful job. And the book doesn't have to be read in order. You cover a lot of different areas. And when you really think about that, it isn't too much of a surprise just because money touches every part of our lives. It's intertwined with our society, with our history, with our ideologies. And I'm curious, before I start running through some of the topics I am excited to talk about, maybe we can start with what was your favorite concept within the book, and we can go from there. I'm going to do two. I can't pick just one. So I'm going to do two. First, probably my favorite or tied for favorite is the chapter about charitable giving leading to abundance.

3:47One of my favorite things to do is find places where the wisdom literature and scripture throughout generations and throughout cultures agrees. Because I think one of the mistakes we make as a human family is that we focus on differences, right? And so we might say, well, what are the differences between this group or this religion and that group? But I'm interested in places where there's connection and where there's agreement. And if you look at every religion and every great philosophical wisdom tradition through the millennia, one thing they all agree upon is that giving money away is a path to abundance.

4:28And that doesn't make sense. From a purely mathematical standpoint, you would think that whatever you give away, you are reduced by that much. But the research around that is fascinating and it proves it out. When you look at people's self-reported, how wealthy they feel, do you feel okay? Peter, you're an advisor. You know this is the number one question that our clients want answered is, am I going to be okay? And when you ask people, are you going to be okay? There's two things that are deeply predictive of that answer. The first one is super obvious. It's how much money do they have? That makes sense, right?

5:11People with more money feel more okay than those with less money. Sure. The second thing, though, that is just as predictive is how charitable are they? And this is true at every income stratum. So people from what we would call low-income earners to high-income earners, low net worth to high net worth, the more they give away, the better off they feel. and in some ways that's a deeply weird finding but it turns out that the wisdom literature was right and the other thing the other chapter that I love and I do love all 50 but the other chapter that I love is the one about investing in self because people like Nick Majuli have written about this from like Nick wrote about this from his data-driven sort of analytical mathematical perspective.

6:09And he does a great job of laying out why you should invest in yourself and work on a side hustle, say, more than trying to squeeze an extra 1 % out of your day trading. And he's right on there. But what I found is the same idea works even from a professional and a personal development stage. People who go to therapy make dramatically more than people who don't. People who bring in a mentor and sit at the feet of someone who's gone before and learn at the feet of someone wiser than them make dramatically more than people who don't. So I think this idea of investing in yourself is really empowering.

6:54It's really powerful, both from sort of the blocking and tackling mathematical perspective and also like elevating your soul, like elevating your game as a person can actually make you wealthier. And that's a pretty cool finding as well. You said one thing that I don't want to scare listeners and viewers off that there are 50 chapters to this book, but the chapters are two to four pages. So before everyone panics, very readable, very easy. And because it is so the short hitting chapters, because it's so quick, you can kind of bounce around. And And because you identified the giving to others and how much joy that brings people, maybe I'll kind of start on that tangent and just ask, why is it that spending money on ourselves typically doesn't bring us long lasting joy?

7:40Yeah. So one of the things that I found so interesting when I was researching this is we think it does and it doesn't. In fact, I believe it's 98 % when you ask people like, hey, I'm going to give you a hundred bucks. You can spend this on yourself or you can spend it on other people. That's your call. Which one will make you happier? And better than 98 % of people say, hey, spending this on myself is going to make me happier. Well, that's dramatically wrong. Like we know from quite a few studies now that spending on others makes us happier than spending on ourselves. And we also see this in children as young as two years old, which is fascinating.

8:28That sharing, giving away, being charitable in kids as young as two gives them this sort of altruistic glow of giving to others and sharing. So this is a very human thing, but it's one of these places where we're miswired to understand what makes us happy. So why is this the case? Well, the first thing is, we're sort of if you look at all of our biases, if you look at all of our biases, and there's hundreds of them, they all kind of load on to a single meta narrative, which is, I'm a good person. If you look at so many of the ways that we sort of misapprehend the world and make biased shortcuts, it's all in service of us thinking we're a good person.

9:18And I just saw Inside Out 2 with my kids this week with my family. And indeed, that is there's this whole thread that runs through the movie about the girl, sort of the thing she wants to feel is that she's a good person. And so obviously, being philanthropic, being giving sort of scratches that itch. It makes us think that we're a good person. And the second thing is that we tend to acclimate quickly to things, whether good or bad. And like so many biases, this is one of those things that actually can serve us really well in many places. People are way more resilient and way more able to acclimate than they tend to understand.

10:03So if something terrible happens to you, you lose a loved one or you lose your job or you lose a bunch of money. If you ask people before that happens, what would happen if you lost so and so person in your life? They would tell you, I would be gutted. Like I wouldn't be able to get out of bed. Life would stop. And that tends not to be the case. Like we tend to be more resilient than we give ourselves credit for. But the flip side of that is we ask people, well, what would it do for you to get a Lamborghini or to get a big house or to get a million dollar windfall? And they go, oh, I would be walking on clouds for the rest of my life.

10:49Like I'd be cloud nine. And that's also not true. So we acclimate to good stuff and bad stuff rather quickly. So the people who are spending on themselves, they buy themselves that nice little trinket or that nice little treat. But the boost to the self is very short lived versus the hundred dollars you gave to someone else. The memory of that has a residual effect that has near infinite payoff versus the little trinket that you bought yourself that you quickly get used to and you get sick of or it breaks. Well, and as the father of two, not as young as they used to be children, and I just cleared out my house of a lot of just stuff.

11:33So I definitely understand how that has minimal lasting joy relative to the vacations we take, relative to some of the fun family nights or activities that we're doing. But there's something you said in there about wanting to think that we're good people. And maybe there is some uncertainty about this. And there was a concept you had talked about in the book where there's this innate drive to evaluate our abilities and our attributes by comparing ourselves to others. And we know that when you start comparing ourselves to others, you fall into kind of a bad trap, maybe some bad behaviors. But when I think of all of the writing you've done on the past, that some of the giants that you mentioned whose shoulders that we stand on have done where we know that people don't like this uncertainty.

12:18We do know that we like to resolve any sort of ambiguity within ourselves. Can you talk a little bit about how the social comparison impacts the way that we are making purchases and then maybe any sort of mental models for how we can think about purchases to either make ourselves have more lasting joy or maybe combat some of the social comparison? Yeah, for sure. So let me talk about uncertainty for a bit, because if there's one thing we want, it's to think of ourselves as good people. And if there's one thing we hate, it is uncertainty. And there's all kinds of cool, I could kind of go on about some of the cool research around this, but suffice it to say that we definitely hate uncertainty.

13:01And we even like bad news more than we like no news. We even like a bad benchmark more than we like no benchmark. If you look at someone who, say, is on a journey with a medical diagnosis, like a cancer diagnosis, something big and scary, far and away, the worst part of that journey, the part where they're most upset, most depressed, most stressed out, is not when they get the diagnosis. It's when they're waiting for the biopsy results, right? So the uncertainty of thinking, hey, like, I might be sick. When those results come in, even if it's really bad, you can start to plan, you can start to move forward, you can start to put the wheels in motion.

13:47But waiting is, as Tom Petty said, the hardest part, right? Like this is really, really tough uncertainty, right? So this is going to be a massive digression, but I think hopefully a fun one. If you look at humankind and you think about the reasons why we engage in these social comparisons, you have to think about what we do well as a species. We are not fast. We're not strong. We don't have cool fur or claws or teeth. We're just kind of soft, like as a species. And our only hope for survival and the reason that we're the top of the food chain, let's go, is because we work together. That's the thing that we do better than anything else, right?

14:32We can't outrun. We can't outlast. We can't outstrong. but we can out think and we can out cooperate other animals. And that's why we eat them. So this is like our number one gift we have. And a lot of biases that we see are just sort of gifts overextended or things that work in one area being misapplied in another. So working together, working cohesively and sort of comparing ourselves to each other is something that we do to get along as a species. But it becomes problematic when we start indexing our financial lives to those of our neighbors, like you said. And I, you know, I talk in the book about this social comparison theory and all the pain it can bring if you're doing it wrong.

15:21So in terms of a mental model, I just give a couple of quick things to think about. One is like gratitude journaling, which sounds, I will be the first to say, like the corniest thing in the universe. Like it's hard for me to even think about the act of writing down in my journal something I'm grateful for every day. But the studies show that it is equivalent to SSRIs, like medication, the antidepressant type medication in the terms of how much it raises our happiness. And that is not a diss on medication. That is not that at all. If you need it, go get it. But it has an incredibly powerful positive effect on our happiness if we just explicitly through meditation, through prayer, through journaling, through expressions to people around us, talk about the things that we're grateful for.

16:17It has an immediate positive impact and keeps us out of those social comparisons. The other thing that I would say is to control your media diet. I mean, this is a thread that runs, I think, throughout the book. We are typically as our decisions are as good or as bad as our inputs. And here we are in political silly season where all the parties are ramping up to try and tell their stories about what's going on. And if we allow ourselves to be sucked into that process, those inputs aren't great and our decisions can accordingly be not great. So be as thoughtful about what you're putting in your mind as a bodybuilder would be about what they're putting in their body because it's the same garbage in garbage out sort of idea there.

17:10And then the last one that I would argue that's the most powerful is reference classes. You are going to index your life to the people you surround yourself with. And I'm going to forget all the stats, but there's great stats in the book about the two best predictors of losing weight are first, weighing in every day. So sort of that daily accountability, again, makes sense. And second, someone in your immediate circle has lost a lot of weight. If you surround yourselves with people who are gaining weight, you tend to gain weight. The opposite is also true. We see this with happiness. We see this with smoking.

17:51We see this with wealth, that the people you surround yourselves with tend to be very predictive of your own behavior because you're just benchmarking your life to them. So be thoughtful about who you're referring to, who you're comparing yourself to, with the caveat that it gets harder and harder to control our reference classes because now I can compare my level of wealth to whatever superstar athlete, hedge fund manager, whatever, whoever I follow on Instagram. Hundreds of years ago, you would have been comparing yourself to your literal neighbors. Now we can select bad reference classes from all over the world with the click of a button.

18:35And if you want to make changes, a big theme that you have throughout the book, I noticed is around habits. And some of these things, even if you're picking the right reference class and you want to move up within your hopefully appropriately selected reference class, you have to instill some habits to basically become who you are. And there's this disconnect between knowing what we're supposed to do, whether it's with our diet or with finances and how we actually behave. So how can someone think about developing a new habit? Maybe it would help if you explained what the habit cycle is to begin with and where people can focus on to develop better ones.

19:15Yeah, I want to talk about that knowing doing gap that you mentioned before, because there's some really fascinating stats there. My favorite is that doctors and nurses smoke at a higher rate than the general population. So like doctors are just barely higher. nurses are like nearly double the rate of smoking of the general population. And if you ask a nurse, right, if you ask a nurse, you know, excuse me, like they're lighting up outside in their scrubs and you go, hey, is that a great idea? I mean, don't do this, right? But if you ask a nurse who's lighting up in their scrubs, hey, should you be doing this?

19:56Every single one of them would tell you, no, like it's not healthy to smoke cigarettes. And yet nurses have tough jobs. They're kind of underappreciated. They work long hours. It's stressful. And so the stress of that job is a better predictor of their behavior than their knowledge. We see this again and again and again. People think that if they know the right thing to do, that they will do the right thing. And it's just such a weak predictor of doing the right thing. So what's a better predictor? What's a better predictor? while it's developing a habit. The way the habit cycle works is a lot of the ways that we get into bad habits is because bad habits have a short-term payoff and a long-term penalty.

20:44So I just recently lost a bunch of weight by counting calories, which is a giant pain. I mean, it was just a giant pain. I cannot say enough. It's just not fun, right? Like you miss social stuff. You look like a dork with your little calculator. And it's like for years, I mean, I had gained two to three pounds a year for basically my married life. And it just adds up slowly, because it's fun, like it has a short term payoff, like eating a donut is awesome right now. Like eating a donut is awesome right now. It's not awesome in the future. And a lot of times good behavior has the opposite impact, right?

21:26Like saving money right now is not fun. It's experienced as a current loss, but it has a future gain. So the way that we develop those habits, there's a framework that I like a lot that was developed by the British, the UK Nudge Unit, and it's EAST. And so it's an acronym for easy, attractive, social, and timely. So the first thing you want to do if you're developing a habit is make it easy. If you want to go to the gym, you lay out your gym clothes the night before. And first thing you wake up and there's your shorts and your t-shirt and your sneaks and you're ready to go. You pick a gym close to your house, right?

22:08We know that people who attend a gym close to their house are dramatically more likely to go than people who have to drive a little bit. So you make it as easy as possible. If you're trying to save money, you automate the process, right? You automate the process so that every two weeks, as soon as that money hits your account, it goes right to your investment account and you don't have to make that good decision over and over again. The next thing you do is that you make it attractive. You make it a little bit fun. So you say, hey, when I hit my goal, I'm going to give myself a little reward. Or again, we'll go back to the, I feel like weight loss and I feel like getting in shape and getting your finances in shape are two of the big ones.

22:51But you say, hey, look, when I lose that 20 pounds, I'm going to go buy myself a new wardrobe. When I hit that savings goal, I'm going to take my family to the beach, whatever it is, you make it attractive, you make it easy. You make it social as the third thing. We talked a little bit about social comparison theory, but we can use that to our advantage, right? During my own getting healthy journey, part of the way that I did that is I had two buddies who I worked out with every morning. And if I didn't show up one morning, they would text me and roast me. And I would do the same thing to them.

23:30And they would say, you know, have you stayed over your protein goal? Have you stayed under your calorie goal? And doing something socially is a dramatic predictor of it sticking. And the last thing is you make it timely. You just get on a schedule. You save that money every two weeks. You rebalance twice a year, once a year, whatever it is. You get on that schedule. You work out at the same time every morning and you do it in a timely way. And then that's going to stick and you're going to associate that time of day. So make it easy, make it attractive or fun, bring a friend and do it at the same time every day.

24:07There's your habit. I feel like I could talk about habits for a long period of time, but you mentioned something there at the end with the accountability group with your friends and relationships is a trend that comes up in a lot of different parts of the book, not just as it pertains to money or just happiness. Can you talk a little bit about broadly speaking, the importance of relationships research that you find particularly interesting on the topic? Yeah, I'd love to. I think this is probably my favorite thing to talk about. So if you look at positive psychology, so Martin Seligman's work in particular, he researched what makes for a fulfilling life, what makes for a life well-lived.

24:47And he found that there's really like five things. One of them is leisure and fun. One of them is deep work. One of them is meaning. So like working for something bigger than yourself, religion, spirituality, philanthropy. One of them is advancement, right? We want to be getting better today than we were yesterday. But the one that is the most predictive of all, if you could just like bet the house on one thing, is relationships. We see the opposite of this is also true. There was research that came out of my alma mater a few years ago that talked about the loneliness epidemic. And this is a huge problem we're experiencing as a country.

25:31And if you look at the power of loneliness or lack of relationship strength on someone, they found that it was twice as damaging to your physical health as obesity. And it was the equivalent of smoking 15 cigarettes a day. So loneliness isn't this high class problem, right? Like relationships are not this nice to have thing. They really are the thing. And when you look at the Harvard, I forgot the official name of the study. I read the book. I think it's called The Good Life. But there's this book about the Harvard, this longitudinal study that was done at Harvard about what makes life good. And again, they found relationships.

26:17So we see that relationships are powerful in predicting good life. We see that the lack of relationships are powerful in predicting bad stuff and even bad physical health. And you even see that in the blue zones research. Like, I love this blue zones research about the places in the world where people live to be 80, 90, 100 years old very consistently. And when you look at this research, a lot of it is pretty commonsensical, right? Like there's places in coastal Japan, where there's all these centenarians because they eat vegetables and fish all day. And you're like, yep, that fits. They walk everywhere.

26:59They eat really healthily. And you go, yeah, I get that. But then there's these outliers, like places in Italy, like rural places in Italy, where everyone just eats pasta and processed meat all day and smokes unfiltered cigarettes. And you go, how are these guys living forever? And it's because their bonds are so tight. Even though their diet isn't what we would typically think of as being great, the villages are tight-knit. They're playing music on each other's front porches every night. They're hanging out. They're deeply supportive of each other. And it overcomes a delicious, if a little unhealthy, diet.

27:38So the power of relationships to make life good can't be overstated. And that's why we see in the financial literature that spending money on things that bolsters relationships is some of the best ways you can spend your cash. Well, that's obvious as you read the book, how often it comes up as a tactic for addressing some sort of emotional or physical or happiness related issue. And there's a lot of research and it feels like more and more so on just money and happiness in general. Relationships don't cost a thing. Yes, you can spend money to help foster those and have activities and such. But I think oftentimes when you have it all, when you're definitively objectively wealthy or have plenty of money, it doesn't always equate to happiness.

28:28So in your experience from the research that you've read, what are some of the things that we know about money and happiness? Yeah, so I'm going to mess up the chapter title, but the chapter title is something convoluted like money can kind of sort of sometimes buy you happiness. this. So it's a little complicated because there's no blood test for happiness. You can't stick a thermometer in someone's mouth and like see how happy they are. So part of it depends on how we are asking about happiness. So there's a couple of ways that researchers do this. One way is they say, Peter, how's your life?

29:08And they kind of have you one to 10 year life and write about it a little it, right? So this is sort of what we call subjective well-being. The other is I could give you a pager, like you're a drug dealer in the 80s, right? I could give you a pager and beep you at different times during the day and give you like a set of emojis or a one to 10 or something and say, hey, how are you doing in this moment? And the ways that we measure happiness with respect to money matter a great deal. So if we go the subjective well-being route, we find that happiness tends to increase with wealth for a very long time, right?