Can Cash Really Make You Happier?

Recent happiness psychology research shows a link between how happy you are and how much cash you have on hand.

Joe Gladstone, research associate at the University of Cambridge in the U.K. and co-author of two recent studies about money and happiness, shared some interesting insights with The Wall Street Journal on the extent that money can lead to happiness.

While one study showed a bank balance may be of more importance to people than their overall wealth, another revealed that shopping for material items only makes people happier if those things happen to fit their personality.

Gladstone and his fellow researchers surveyed thousands of customers at a bank in the U.K. about their happiness in order to match their answers to transaction data linked to their bank accounts.

“We find a very interesting effect: that the amount of money you have in your bank account right now is a better predictor of happiness than your aggregate wealth,” Gladstone explained. “Having more money in their bank account makes people feel more financially secure, which leads to an increase in happiness.”

He explained that, even for wealthier respondents — with a lot more in their savings and investments — a higher amount of money in their checking accounts seemed to lead to increased happiness.

The research findings tend to go against the traditional advice of financial planners, many of whom believe that leaving money to sit in an account is a waste and that it should be invested.

While Gladstone said this may be the right choice from a strictly economic standpoint, it doesn’t take into account the human psychology aspect.

“It isn’t just about maximizing your monetary benefit but about maximizing your wellbeing,” he added.

“So many people are living as financial zombies, going from paycheck to paycheck. Yet, often, they do have some assets. Maybe they own a house or have access to some other asset. If they shifted their approach and built up more of a buffer to make themselves feel more secure, it might be a powerful way to make them feel happier with their lives,” Gladstone said.

The research shows that what fits in with a socially desirable behavior may not always be what makes people feel the happiest.