The Cost of Happiness

Features, Top Stories — By on May 1, 2013 5:23 pm

CoinsHappiness may come at a cost. A monetary one.

Even though London’s well-respected Centre for Well-Being argues that happiness is not about economics, a recent study from the Organisation for Economic Co-operation and Development reveals a major component of happiness relates to high disposable income. The more an individual has, the happier that person is. (Often confused terms, disposable income is take-home pay while discretionary income is the remainder after expenses: fun money for entertainment and saving.)

Surveying more than 35 countries, the Organisation for Economic Co-operation and Development discovered eight of the top 10 happiest people showed high disposable incomes, with U.S. citizens garnering the most take-home pay. Once Americans have used their net salary to pay for rent, utilities, insurance and other essentials, where do they spend their discretionary income, and do these purchases provide happiness?

Discretionary Dollars: Where Do Americans Spend Their Extra Cash?

From Chik-fil-A to the local dive or to one’s favorite vegetarian bistro, where Americans pay the tab proves the top expenditure for discretionary income.

The desire for eating out comprised 5.3 percent of a household’s average income, more than double the second place contender, gift-giving (at 2.2 percent), according to 24/7 Wall Street, a financial team who analyzed data from the Bureau of Labor and Statistics.

Following gift-giving was TV and sound equipment purchases. Slot No. 4 was reserved chiefly for pets — dubbed “The Fido Effect” by fundraising gurus at the Charis Group. Americans pay for other personal indulgences such as alcohol and tobacco while vacations, entertainment events, sports equipment and apparel rounded out the list.

Though these expenditures are likely no surprise, Robert Guell, professor of economics at Indiana State University, reflects on a current spending trend. In a word, gadgets.

Wide 16:9 LCD television set (with screen and clipping path)“Gadgets play an important role in our lives,” Guell says. “People walking from one place to another often have their heads down as they type into their phones. Many individuals like being up to the second on subjects such as national news, sports news and updates on social media. To be an early knower holds a great deal of value. To my way of thinking, this is unnatural. Although I do have to admit, I have certain alerts on my phone, too.”

From dining out to media addiction, discretionary dollars get spent. But are these purchases making Americans happier?

According to the aforementioned data, Americans spend most discretionary income on dining out and other items, which could be classified as luxuries. But what if Americans are made happier by experiences? This is the contention in Journal of Consumer Psychology, where researchers suggest the things that make people happy are not for sale. Instead, the scholars assert Americans are after experiences.

By analyzing the “affective forecasting literature” on happiness and subsequent unhappy subjects, the researchers believe they have tapped into the source of people’s pleasure. Referring to an earlier study, they note that subjects responded very positively (57 to 83 percent) to the idea of purchasing experiences over buying material goods.

Are Americans Happier from Buying Luxuries or Experiences?Though the authors suggest several spending principles like helping others, choosing smaller pleasures over large ones and acquiring less insurance, ultimately the researchers believe people can best achieve happiness from a balance of living a happy life and using discretionary income not necessarily on things, but on buying experiences.

Discretionary Income Up Close and Personal

What spending choices are Americans making in their daily lives, and are they purchasing luxuries or experiences or a combination of the two? Surveying several Indiana State University alumni revealed answers.

Elizabeth Gaither, ‘84, a social worker for Lifeline Youth and Family Services in Terre Haute, calls herself old-fashioned and likes to spend part of her discretionary income on print books and on music CDs. As well, she’s not a fan of viewing films from the couch. “I love the adventure of going to the movies. There’s something magical about the big screen I can’t live without,” Gaither said. Travel to warmer climes like Florida also made her list. Gaither views giving back as a priority and helped establish the Cheryl Slaughter Memorial Scholarship for an outstanding speech-pathology student at Indiana State University.

BeachThere is a cost to happiness, according to Britt Steenberg, GR ’94, who serves as a communication consultant in Chicago. Her priorities are making enough money to be comfortable, saving and providing for a child. She and her boyfriend devote a certain amount of their spare dollars on retirement and on his child’s education. They use other discretionary income on dining out; entertainment like movies, concerts, museum visits and Cubs’ season tickets; gifts at the holidays; charitable donations; and travel.

Amanda McCracken, GR ‘02, teaches ESL courses at the University of Colorado, provides massage therapy and works as a freelance writer and triathlon coach. With her extra income, McCracken saves a significant sum each month. Key components to her happiness are visiting friends, travel and exercise. An expert money manager, she combines work with pleasure, and her recent sightseeing trips to France and Japan yielded published articles about her experiences. “I also use my fun money on dinner/café dates with friends, gifts, competitive race entries and the occasional, new scarf,” McCracken said.

The top discretionary income choices for these Indiana State University alumni matched the primary selections of most Americans. Dining, travel, and entertainment represented common luxury choices for these graduates. However, gift-giving, saving, connection to friends, and a taste for adventure proved to be priorities.

The excitement of seeing a film on the big screen, establishing an endowed scholarship, attending concerts and Cub games and traveling abroad suggest extra income was not used exclusively for buying goods, but also for purchasing experiences.

What If One Has a Dollar a Day to Spend?

Analyzing the Bureau of Labor Statistics data used by Planet Money, business writer and The Atlantic senior editor Derek Thompson notes that what Americans do with their discretionary dollars depends on how much one makes, and he recounts the sobering details: After the essentials, the poor ($16,000 annual income) have a remaining discretionary income of 15 percent, while those making $150,000 or more, retain 40 percent of their earnings.

Thompson continues that if dining out, education and healthcare are considered “essential” expenses,” then the poor spend 98 percent on these costs, leaving $367 in extra income for the year, roughly a dollar per day for fun.

To take part in free activities can be valuable no matter one’s economic station, and most communities provide many free activities.

The Cost of Happiness

Though many cities and communities offer free events that offer great opportunities for personal enlightenment, entertainment and development, other pleasures cannot be attained for free.

Happiness does come at a cost, and Americans are paying up to acquire both luxuries and experiences.

Often, people buy indulgences like restaurant dining, vacations, flat-panel TVs, and gadgets. Yet, to peek into the spending of Americans, and in particular Indiana State alumni, shows a different story — one of giving, connection, and adventure.

Dave Malone, GR ’94, is a freelance writer in West Plains, Mo. Life-affirming things like love and family are central to Dave’s happiness; cycling, sipping small-batch bourbon with good friends, watching films and creating art also provide him with great joy.


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