Finance for Normal People

Behavioral life-cycle of saving and

spending
Life-cycle hypothesis is individuals seek to smooth
consumption over the course of a lifetime – borrowing
in times of low-income and saving during periods of
high income.
 Behavioral life-cycle of saving and
spending

1. Standard life-cycle theory

Our sole reason for saving is spending

We wants “smoothed” spending during our life-cycle

(More precisely, we want smoothed marginal utility of

consumption and leisure during our life-cycle)

People need no tools and no help in resolving conflicts

between wants for saving and spending
 Behavioral life-cycle of saving and
spending
2. Behavioral life-cycle theory

Our reasons for saving consist of wants for the full range of
utilitarian, expressive, and emotional benefits of wealth
(Wealth owning, rather than spending, also yields
expressive and emotional benefits)

People reconcile the conflict between wants by:

Framing
Mental accounting
Self-control

Public policy also helps reconcile conflicts between wants

 Behavioral life-cycle of saving and
spending
The spending-sources and spending-uses pyramids

Figure 9-1a – Saving-sources pyramid

 Behavioral life-cycle of saving and
spending
Figure 9-1b – Spending-uses pyramid

Major luxury and status 
items, such as luxury cars 
and jewelry 

Discretionary items such 
as recreation and travel

Necessities, such as food and shelter
 Behavioral life-cycle of saving and
spending

Self-control

Conscientiousness is closely associated with self-control

Poverty undermines self-control

Self-control is bolstered by commitment

 Behavioral life-cycle of saving and
spending
Self-control

Wants for spending can overwhelm wants for saving when

self-control is weak

Genetics account for approximately 1/3 of differences in

saving behavior

The effect of parents on their children’s saving behavior is

strongest when children are in their 20s but disappears by
middle age
 Behavioral life-cycle of saving and
spending
Personal Saving Orientation (PSO) is a measure of saving
habit

People with high PSO tend to agree with statements such

as:
“Putting money into personal savings is a habit for me”
“I usually save money without having a specific goal in
mind”

People with high PSO find it difficult to break their saving

habit
 Behavioral life-cycle of saving and
spending

Financial literacy

Financial comprehension

Financial behavior
 Barriers to Inclusion in Financial
Perspective

Supply (industry) Demand (consumer)

•Appropriate products •Financial Capability:
•Processes - Knowledge
•Procedures - Skills
•Marketing -Confidence
-Motivation
 What is Financial Capability?

“… a broad concept, encompassing people’s knowledge and

skills to understand their own financial circumstances, along
with the motivation to take action. Financially capable
consumers plan ahead, find and use information, know when
to seek advice and can understand and act on this advice,
leading to greater participation in the financial service
market.”

Financial Capability: the Government's long term approach,

HM Treasury, 2007
FSA Baseline Survey has highlighted 4 main points

1. Large numbers of diverse people are not taking basic

steps to plan ahead
2. When debt strikes it is often severe
3. Many people are unconsciously taking financial risks
4. The under 40s are typically less financially capable than
their elders
www.fsa.gov.uk/pubs/other/fincap_baseline.pdf
 FSA Strategy for Financial Capability
Seven key priorities:
■ Schools
■ Young adults
■ Work
■ New parents
■ Money Advice
■ Online tools
■ Consumer communication

www.fsa.gov.uk/financial_capability
 Financial Capability Resources

■ www.moneymatterstome.co.uk
Offers a practical guide to family finance using games and
activities to teach about money. Good for using with
individuals who are facing a change in circumstances.
■ www.moneymadeclear.fsa.gov.uk
Offers facts on financial products and services to assist
individuals in making informed decisions.
Does What You Know Now, Affect Your
Future?

■ Of course what you know today

affects tomorrow
– You couldn’t drive a car without a
license
■ That’s why you need to begin learning
about how to spend your money
wisely today
How Does Your Attitude Toward Money
Change As You Age?
■ Five Year Old:
– Come On ma, can I have a dollar to
buy that ring?
■ Fourteen year old:
– Mom I want sixty dollars to buy that
designer label top and those cool
pants.
■ Eighteen Year old:
– Shoot, I how can I get money for
college. I'll ask mom.
■ Forty Year Old
– I need to save for my retirement. No
excessive spending.
What Are The Differences Between Savers and
Spenders?
■ Spenders:
– Receive short term satisfaction by getting an object they want
immediately.
■ Savers:
– Save for items and appreciate them forever.
■ Spenders:
– Have little money in the bank, because they spend their
money on pricey items. Often are in debt, and have no money
set aside for the inevitable “rainy day.”

■ Savers:
– Have money in the bank because they knew how to manage
their money. Prepared for financial emergencies.
 Definitions You Should Know

■ Literacy:
Having an expanse of
knowledge in a certain
subject
■ Finance:
The management of money
Why is Financial Literacy Important?

■ World is about money. People are

defined by how much money they
make, possess, and what they do
for a living.
■ Therefore to be successful, and
looked well upon in the future, you
need to know how to manage your
money accordingly.
 How Does Entrepreneurship Relate to
Financial Literacy?
■ First off, what is an Entrepreneur?
– An entrepreneur is a person
who owns, manages, and
takes the risks of a business
venture.
■ So... How does that relate?
– Well, an entrepreneur has to
be financially literate in order
to succeed at his business
venture. He or she needs to
understand how to spend,
manage, and budget their
money to get the most profit.
How does Financial Literacy Affect You?

■ Financial literacy affects

everyone in different ways.
■ But the uniformity behind it is, if
you manage your money wisely,
you will have a large sum of
money to fall back on for
retirement or emergencies.
– EX. House burning down
How Does Financial Literacy Affect You
Today?

■ You can never learn

something overnight. An
education on a subject
needs to grow with time.
■ If you learn about money
management now, you
will be prepared in your
future.
 How Does Financial Literacy Effect
Your Future?
■ In order to be profitable
and have a vast sum of
money in your future you
will need to know how to
manage your money,
whether that be by
investments, savings,
etc.
 How Do You Find The Career Of Your
Dreams?

■ Study what interests you, and learn how that

applies to life/careers.
■ Look at different jobs options, and figure out which
job best fits you (intellectually, physically, and
financially)
■ Once you figure out a career path you want to take,
be aggressive in following it. Don’t let opportunity
pass you by.
 How To Become Successful

Employee Business Owner

■ Think outside the ■ Make the employee feel

box. he/she is part of a family,
not a business.
■ Always contribute
positively to your ■ Give incentives.
occupation. ■ Give positive feedback.
■ Enjoy what you do. ■ Respect your employees
opinions.
■ Know how to invest,
and save your money ■ Manage your money
accordingly to make
to have for yourself the most profit.
retirement.
 What We Are Covering

■ “What” Students
• Segments of student borrowers at risk
• Common characteristics

■ “What” are the Financial Literacy Basics

• Budgeting
• Borrowing
• Repayment Strategies

■ “What” are Schools Doing to Promote Financial

Literacy?
27
 What Students to Target

■ Students at risk of non-completion

■ Students at risk of default

■ Students at risk of taking on unsustainable

amounts of debt

28
 Characteristics of Non-Completers

• Students taking remedial courses

• Students working more than 20 hours per

week

• Students with limited financial resources

29
 Characteristics of Defaulters

• Students who do not complete a program

• Students who rely on private loans

• Students who borrow much more than the average

• Students from low-income backgrounds

30
 Unsustainable Debt

• 7% of undergraduate borrowers have loan

balances over $50,000

• 46% of graduate borrowers have loan balances

over $50,000

31
 Risks Related to These Segments

• Borrowers who dropout of school are 4 times more

likely to default on their student loans

• 16.8% of borrowers who dropout of school default

on their loans, compared to only 3.7% of borrowers
who graduate

32
 High Amounts of Debt (>$50,000) by Age

1000000

900000

800000

700000

600000
Borrowers

500000

400000

300000

200000

100000

0
24 and under 25‐29 30‐34 35‐39 40‐44 45‐49 50‐54 55‐59 60‐64 65 and over
Age

Source: NSLDS borrowers as of June 30, 2012 with open loans and a balance greater than zero; age is calculated as of June 30,
2012; Parent Plus loans excluded. 

33
 What is Financial Literacy?

GENERAL DEFINITION
The ability to use knowledge and skills to manage financial
resources effectively for a lifetime of financial wellbeing.
2008 Annual Report, President’s Advisory Council on Financial Literacy

FOR OUR PURPOSES

The ability for postsecondary students to use knowledge and
skills to make good decisions related to budgeting, borrowing,
and repayment strategies.

34
Map Your Financial Future
 The Basics

■ Budgeting

■ Borrowing

■ Repayment Strategies

36
 Budgeting
Incoming Outgoing
Grants Tuition & Fees
Scholarships Books & Supplies
Work-study Housing
College Savings Plan Transportation
Family Assistance Food
Individual Income Health Care
Loans Entertainment
Loan Costs
$$$ $$$

37
 Borrowing

• Federal Loans vs. Private Loans

• Maximizing other sources

• Minimize borrowing

38
 Repayment Strategies

• Basic fundamentals of a loan

• Repayment benefits of a federal loan

• Who to contact and keeping in touch

39
 Financial Literacy

Step 1: Create a Budget-Expenses

■ What do you want vs. what do you really need? Start with your
mandatory expenses on a monthly basis. Add them up.
Example:
My Monthly expenses are/will be:
1. Rent $_________
2. Utilities $_________
3. Food $_________
4. Transportation $_________
(include: bus pass, fuel, insurance, payment)
5. Other Bills $__________
(include: credit cards, loans, cell phone, internet, etc…)
6. Other expenses $_________
(include: eating out, clothes, movie tickets, etc…)
Needs Versus Wants
 Financial Literacy

Step 2: Create a Budget-Income

■ Next you want to determine your monthly income.
Example:
My Monthly Income will be:
■ Wages/Salary $_________
■ Business Income $_________
■ Food Stamps $_________
■ Financial Aid $_________
■ Other $_________
■ TOTAL MONTHLY INCOME $__________
 Financial Literacy
Step 3: Assess, Adjust and Make a Plan
■ Next you want to subtract your total monthly expenses from
your total income.
Example:
■ Total Monthly Income $________
■ Total Monthly Expenses $________
■ TOTAL SAVINGS $________
*If your expenses exceeds your income, prioritize your
expenses and look for ways to cut back on spending*
 The rule of thumb is that your expenses should not exceed
your income and there should be at least 3 months living
expenses in your savings.
 Assess your income and expenses, make a plan and stick
to it!!
 Financial Literacy

Step 4: Start a Weekly Log of Flexible Expenses

Example:
My Weekly expenses are/will be:
1. Fuel $_________
2. Groceries $_________
3. Dining Out/Take-Out $_________
4. Clothing/Shopping $_________
5. Entertainment $_________
6. Other $_________
Total- $_________
 These are items that should be monitored and assessed to
determine if over-spending is occurring.
 Financial Literacy

Step 5: Create a Calendar of Fixed Expense Due

Dates and Income Received
The 1st of
Every Month
–Rent
($350)
The 29th of The 1st of
Every Month Every Month
-Student Loan Wages
Payment +Pay Day
($150) $600

Monthly
Fixed
The 19th of Expenses
and Income The 1st of
Every Month
Every Month
-Credit Card
+Cal-Fresh
Payment
$200
($100)

The 15th of The 15th of

Every Month Every Month
+Pay Day -Car Payment
$600 ($250)

 This will ensure payments are made on their due date to

protect your housing, food supply, transportation and line of
credit
 Financial Literacy
Tips for Staying in the Clear:
• Don’t over-borrow!
• Balance your check book every time you
write a check or use your debit card.
• Avoid credit cards unless you plan on using
them only in emergencies-they can pose as
an invitation to over-spend.
• Pay off smaller credit card debts first, then
apply bigger payments to larger debts.
• Never have more than 2 credit cards open at
a time, make sure the amount owed is less
than 30% of your credit line, and never miss
a payment!!
 Financial Literacy
SMART Spending Saves $$$
Tips for SMART spending:
• Buy discounted items
• Shop with coupons
• Enjoy low-cost entertainment
• Buy used
• Avoid spending out of impulse
Don’t Borrow What you Can’t Pay Back
 Healthy Relationship with Money

■ In summary, financial well-being can be defined as a state of

being wherein a person can fully meet current and ongoing
financial obligations, can feel secure in their financial future, and
is able to make choices that allow enjoyment of life.

The four elements of financial well being (cfpb) 

Present  Future 

Security  Control over day‐to‐day Capacity to absorb financial shock 

Month to month finances 

Freedom of Choice  Financial freedom to make  On track to meet financial goals 

Choices to enjoy life 
Consumer Financial Protection Bureau (Jan 2015)
 Financial Decision-Making

■ Whether we are conscious of it or not, our values

determine how we use our money.
■ Any financial goals you create are an extension of
your values.
■ Financial hardship often comes when we stop
paying attention to the connection between our
values and our money.
Why Financial Goals are Important

■ “Goals are like the wheels on your car; they keep

you moving in the direction you want to go, and you
won’t get very far without them.” – Davidoff
■ Working toward goals brings a sense of
accomplishment and diminishes stress.
■ Financial Stewardship is a theological value.
 Developing Your Budget

■ Once you have your net worth statement and have

created some financial goals, you are ready to
create your budget.
■ Your Budget = your tool for attaining your goals
■ The term “budget” can bring negative imagery to
mind (penny-pinching, stress, etc.). Choose your
‘tude!
■ A budget is a spending plan. Nothing more.
■ Controlling spending makes saving effortless.
 Signs of a Good Budget

■ It should be Realistic
■ Has some flexibility to meet the changing demands
of life
■ Allows progress toward your goals
■ Should be simple enough that you can manage it in
the time you allot
■ Should reflect the your financial values
 Customizing Your Budget

■ List and add all your sources of income for one month
(MONEY IN):
– Wages from job/s
– Student Loans (a monthly total)
– Child support/alimony
– Rental income
– Interest income/Dividend income
– Child support and/or Alimony Income
– Other sources of income (family support?)
 Customizing Your Budget
■ Next, list all of your expenses for one month
(MONEY OUT):
– Savings (list me first)
– Mortgage or Rent
– Utilities
– Auto Expense/Other Transportation
– Groceries/Eating Out
– Entertainment/Recreation
– School Supplies (Computer, Books, etc)
– Credit Card Payments
– Clothing/Shoes
– Gifts and Donations (Tithes)
– Household/Personal Care Products
– Miscellaneous
 Pete the Planner
■ The following are recommended guidelines for the most
common financial categories in budgets:
– Rent/Mortgage – 25%
– Utilities/Phone – 10%
– Transportation – 15%
– Groceries/Dining Out – 12%
– Savings – 10%
– Entertainment – 5%
– Medical 5%
– Gifts/Donations – 10%
– Clothing/Shoes – 5%
– Misc. – 3%
■ These are guidelines, not universal laws, but try not to
stray too far from these figures.
 Setting Your Budget Figures

■ Set a realistic spending goal for each category

■ First, figure out where you money is going now –
how much to each category and use that as a guide
■ Track the small expenditures – trips to Starbucks,
iTunes downloads, snacks from across 21st Ave.
 Keep it Simple-Go Digital!
– Links to all bank accounts, mortgage, credit
cards, and more…
– Creates a net worth statement
– Notifies you of upcoming bills and recent
transactions
– Allows you to enter receipts immediately via
the phone app
– Helps you set a budget and gives real-time
updates on where you are with regards to your
goals
– Displays everything in pretty and easy to
understand charts and graphs
 Monitor Progress

■ Monitor your progress each month

■ Celebrate each victory
■ Plug any “spending leaks”
– Impulse buys
– Grocery indulgences
– Over-purchasing (phone plans, cable TV,
anything that you are paying for and don’t
really use/need)
 Top 10 Personal Finance Tips

■ From “The Everything Personal Finance in Your 20s

and 30s Book,” by Howard Davidoff, JD, CPA, LLM”
1. Make the effort to educate yourself about personal
finance. Read financial magazines and good
financial books and use well-known, reputable sites
on the Internet.
2. Budget! Operating without a budget is like driving a
car without a steering wheel. You don’t have
control over where you are headed.
3. Save the pennies and dollars will save themselves.
Lots of small amounts add up to big savings.
 Top 10 Personal Finance Tips

4. Pay cash. If you can’t afford to pay cash, maybe

you can’t afford to buy.
5. Always think about opportunity costs. You may not
be paying for something directly, but giving up the
opportunity to make money is a real cost.
6. If possible, take savings out of your paycheck
before you see it. After a while you will get used to
spending on the lower amount, while your savings
grow.
7. Be a smart shopper. Don’t buy cheap items that
won’t last and don’t pay for bells and whistles that
you don’t need or won’t use.
Top 10 Personal Finance Tips

8. Know how to recognize the warning signs of too

much debt, and if you see yourself headed for
trouble, act quickly, before you ruin your credit
score.
9. Don’t go without some type of medical insurance,
even if you can only afford a policy with a very high
deductible. If you become ill or are injured in an
accident, the medical bills could ruin you
financially.
10.Remember, most millionaires are just average
people who practiced sound financial principles like
those in this book. You could be one of them.
 Trigger Warning

■ Money Management can stir up “stuff” within us:

– Anger
– Guilt
– Frustration
– Sense of Hopelessness
– Anxiety/Fear
– Avoidance
 Why Budget?

■ Budgets are a necessity to take control of personal

spending, saving, and debt.
■ The loudest voices in finance come from
corporations that do not have your best interest in
mind.
■ Living beyond your means is a dangerous practice.
■ Many individuals don’t realize they are
overspending until they are deeply in debt.
■ Credit cards and easy access to funds make it
easier to be mindless about spending.
■ The absence of a budget is one of the greatest
contributors to stress about money matters.
 Materialism & Personality

“The importance a consumer attaches to

worldly possessions. At the highest levels of
materialism, such possessions assume a central place
in a person's life and are believed to provide the
greatest sources of satisfaction and dissatisfaction”
(Belk, 1984, p.291)

“Materialism is a value that represents the

individual's perspective regarding the role
possessions should play in [a persons] life”
(Richins , 1994, p. 522)
 Materialistic Traits

Possessiveness - control or ownership of possessions

(Belk, 1983, p.514)

Nongenerosity – unwillingness to share (Belk, 1984, p.

291)

Envy - feelings of hatred or dislike at another person’s

superiority (Schoeck, 1966)
A Value Conceptualization of Materialism

◈Pursuit of possessions and materialism’s role in

consumption choices reflects materialism as a
value

◈The impor tance of acquisition to reach

satisfaction

◈Impossible to achieve happiness

(Fournier & Richins, 1991, p. 411)

 Material & Experiential Purchases

Possessions & happiness

◈Devotion of time and money

(Boven, 2005, p. 132)

◈The importance of buying more

(Richins, 2003, p.1)

◈“…joyless material possessions […] resulting in comfor t but not

pleasure”
(as cited in Nicolao et al., 2009, p.189)
 Material Experiential
purchases purchases

(Boven, 2005, p. 134)

 Material:
•Tangible
•Last a couple of days
•Take up physical space
(Nicolao et al., 2009, p.189)
• Experiential:
• Intangible
• Last for a lifetime
• Provide knowledge
(Nicolao et al., 2009, p.189)
• Can not be acquired if not available
(Boven & Gilovich, 2005, p. 1201)

 Some material possessions can be perceived as experiences

(Boven, 2005, p. 133-134)A

Material possessions with sentimental value can provide more happiness

(Boven & Gilovich, 2003, p. 1201)
 “… the hedonic superiority of experiential over material purchases is
multiply determined.”
(Boven,2005,p.137)

Material Experiential
•Instant pleasure • Lasting pleasure
(as cited in Nicolao et al., 2009, p. (as cited in Nicolao et al., 2009, p.
190) 196)

•Social ills •Social relationships

(Boven, 2005, p.133)

•Guilty feelings • Less disadvantageous

(Richins, 2012, p.3) comparison
(Boven, 2005, p.137)
“Materialists believe that
acquiring things will make
them happier and they
tend to act on this belief
by buying more”

(Watson, 2003, p.724)

 Product- evoked emotions in 3 phases of the purchase process
actual
prepurchase purchase postpurchase
process process process

(Richins, 2012, p.14)

Greater emotional intensity for high-materialists during the purchase process

Positive emotions Negative emotions
 joy  fear
 excitement  envy
 happiness  anxiety
 discontent (Richins, 2012, p.5)
 Fluctuation of Emotions Across the Purchase Process

High- materialism consumers Low- materialism consumers

◈Prepurchase phase: Positive emotions
hedonic elevation ◈flat
◈Postpurchase phase:
◈slightly upward
hedonic decline
(Richins, 2012, p. 12)
Relatio n between product’s cost and consumers’ positive emotions
Low-materialists:
remain unaffected by the cost of the product
High-materialists:
more intense hedonic elevation for expensive products
(Richins, 2012, p.06)

Contradiction in the source of emotional fulfillment

◈ High-materialists derive happiness from products
◈ Low-materialists derive emotional fulfillment from interpersonal
relationships and spirituality (Myers, 2000, p. 57)
Adaptation to new acquisitions
positive feelings associated with product acquisition: not durable
and fade quickly -in a matter of few weeks.

Why?
◈ adaptation to new acquisitions is inevitable (Dunn et al., 2011,
p.116-117).

Consequence:
Want to acquire more goods, so they can recapture the positive feelings
they had
experienced upon purchase
“positive disconfirmation of expectations … result in high
satisfaction”

Meets expectations

Exceeds expectations

Lower than expected

(Sirgy, 1998, p. 236)
.. dissatisfaction is greater when our standard of living
expectations is a
set goal affected by social comparisons
(Sirgy, 1998, p.250)
 A competing motivational system

A materialistic person does not stop earning money (Ahuvia,

2008, p. 502).

Optional Distinctiveness Theory (Brewer, 1991, 478)

◈Make money to belong to a group

◈Make more money to differentiate myself
 Value Conflict
“[M]aterialism can be viewed as the value a consumer
places on the acquisition and possession of material
objects” (Boroughs & Rindfleisch, 2002, p. 349).

Materialistic Community
Values Values

Prioritize Prioritize group well-

individualism being
Depreciate group Depreciate
well-being individualism
(Solomon, 2013, p. 170)
 Value Conflict

M aterialistic INNER Community

Values CONFLICT Values

 Depression
 Neuroticism
(Borough & Rindfleisch, 2002, p. 365).
 Myths:
Misbeliefs and Oversimplifications

■ Happiness is 50 percent genes and 50 percent under

our control
■ SWB is primarily personal
■ Income is not important to happiness
■ People adapt to conditions, even paraplegia, and so in
the long-run happiness is within the person
■ Marriage makes people happier
■ Religion makes people happy
■ Eudaimonia and SWB are clearly separable
■ Higher needs emerge after lower needs are met
 But Useful Fictions

■ Although the myths are not literally true (for a

scientist), they tend to capture some truth about
SWB
 Causes and Influences on Happiness

External and Internal

(Top-Down vs. Bottom-Up)
External Internal Influence

■ The society in which you Genes, inherited temperament

live!

■ The spouse you marry.

■ The neighborhood in which

you live.
 How is your life today? (Cantril ladder)

Mean Response (0 –
10)

Data Source: Gallup World Poll 2006-2008 waves

 Is SWB Just Internal?

94 % of Danes are Above

97 % of Togolese
50
Percent of Respondents

40

30

20

10 DENMARK

0 TOGO
0 1 2 3 4 5 6 7 8 9 10

Ladder of Life Scores

■ 50 %
Happines ½ under your
control
■Biggest myth
in SWB field
 The Myth

50 percent? No, it varies by study – some show 30 %

50 percent? No, it varies by environmental variation.
Heritability is not a fixed number
50 percent within? No, heritability is about differences
between people, not within them
50 percent under your control? No, it says NOTHING
about controllability!
 The Useful Fiction

■ Not 50 percent, but you can control some of your

happiness, but perhaps not all of it. You choose
how happy you are – a useful fiction?
 Both Internal and External!

■ Personality Society
■ Outlook Neighborhood
■ Resilience Workplace

Positive Psychologists need to also focus on organizations

and societies, not just what is within people!
 So How Do we Get SWB?
■ Reduce negative feelings
Meditation
Resilience
Appraisal
Attachment

■ Seek more positive feelings

 Seeking Positive Experience

The shortcut methods

Drugs, alcohol, sensation seeking
Quick sex
Purchasing luxury goods

Sustainable approaches
Deep relationships
Meaning and purpose
Developing and using skills
 Money and Happiness?

■ Does money make us happy?

■ Yes or No?
– Sorry, the answer is not so simple
National Income and Life Evaluations
r = .82
Diener, Kahneman, et al., 2010
 Beyond Money:
A Tale of Two Nations
 Subjective Well-Being
South Costa
Korea Rica
Life Satisfaction 5.65 7.25
Positive Feelings .88 .67
Negative Feelings .22 .20

GDP/Person $ 46,500 12,800

 In General
■ High income nations higher in life satisfaction

■ Also higher in stress

Income and Enjoying Life
 Figure 2
Declining Marginal Utility
1.5
Standardized Well-Being Scores

1.0

.5

0.0

-.5
Well-Being Variables

-1.0 Ladder

-1.5 Affect Balance

-20000 20000 60000 100000 140000
0 40000 80000 120000 160000

Income
 Materialism Can Be Bad

Valuing money more than other things can

lower SWB
 Materialism When Entering College, &
Income and Life Satisfaction at Age 38
(Nickerson, Kahneman, Diener, & Schwarz, Psych. Science, 2003)

4.5

3.5
Non
3 Materialists

2.5

2
Very Low Moderate Very
High
 Money and happiness
Depends on aspirations
Depends on how money spent (Liz Dunn)
Luxury goods vs. helping others
Depends on what is expected in the future
Depends on personal AND societal income
Depends on meeting basic needs vs. luxury—declining
marginal utility
Other factors can override income (e.g., S. Korea)
Depends on what type of SWB (life satisfaction vs. enjoying
life
 The Useful Fiction

■ Money won’t make you happy = don’t sacrifice too many

other things just to get rich. You need an enjoyable job
and good social relationships too.
 Declining Marginal Utility

■ Income
■ BUT – other resources also show DMU
Friends
Leisure time

■ So BALANCE in life. But also activities – meaning, skills

and flow, and relationships
 Benefits of High SWB

■ High SWB CAUSES (Does not just follow from):

Better health
On average more longevity
Better social relationships
High income and work performance
 Conclusions

■ SWB is a valuable thing! Good for the individual; good

for societies
■ We need good societies too
■ Societies need to monitor SWB
■ Individuals need to strive for sustainable happiness
■ Money matters, but is not overriding
■ We can foster happiness with positive attitudes and
behavior