Why Singaporeans' happiness can be bought by money

For many, many years there have been studies conducted on the empirical relationship between money and happiness and a conclusive answer has not yet been widely accepted. I have therefore highlighted below firstly the empirical evidence to support the theory that money does in fact buy happiness. Secondly, and perhaps most importantly, I have highlighted the steps you can take to ensure happiness in your own life.

Money and Happiness – Previous Research

Most economic research has always pointed to a satiation point, beyond which people do not become happier by having more money. This amount is typically enough to cover basic costs plus some freedom within discretionary spending. The amount therefore will of course differ between countries.

Some surveys have highlighted the complete opposite with a 2007 Gallop poll that was conducted showing that just 35% of people earning less than US $35,000 were ‘Very Happy’ whilst 100% of those earning over US $500,000 stated that they were ‘Very Happy’.

Then there is the well-known research conducted by world-famous economist and Nobel-prize winner Daniel Kahneman which pointed to happiness levels starting to level off at approximately US $75,000 per annum. This was enough to cover basic costs and cover some degree of discretionary spending.

This research points largely to one thing…there is NO clear answer at all as to what level of income people must earn to be happy.

Singapore Happiness Survey

There has been a recent survey conducted this year (2013) by JobsCentral Group highlighting the level of happiness amongst the general population here in Singapore. There were some key and quite alarming statistics that were revealed including:

-        In 2009 (Global Financial Crisis), the happiness rating was 56.4

o   It is currently only 57.9

-        S$10,000 per month was stated to be the magic happiness income level

-        Lawyers are amongst the unhappiest within the sample population

-        Those aged between 51 – 60 years old were the UNHAPPIEST with a score of 55.5 which has dropped 12% since 2009

I have highlighted the last finding from the survey because I believe it is the most important. This illustrates that those about to enter retirement and starting to think about the income they will have to live off are the UNHAPPIEST population group. There are many reasons for this including the wake-up call that retirement is close, a review of the current investment performance, review of their CPF and other retirement accounts, a realisation of the income level they will have to live off.

The key reason is my opinion that is driving this unhappiness is the UNCERTAINTY that has been created by global markets and the economy which is impacting the retirement options for this particular demographic.

It is my belief that the income level itself it not the key driver behind happiness, but it is rather the certainty that this income level can create for the individual by building passive income streams and a safe/comfortable retirement.

The PROOF

Studies conducted in the US around the time of the global financial crisis support the hypothesis that periods of high uncertainty lead to the greatest levels of unhappiness. From January 2008 to November 2008 the happiness score fell 11%. As confidence was restored and the market appeared to be bottoming out, the confidence level climbed 15% quickly within 3 months. The real income levels have dropped from the pre-GFC levels however happiness levels were able to be restored to previous levels quickly.

What should YOU do…?

PLAN…PLAN…PLAN!

The greatest strategy to avoid uncertainty is to have clear plans in place to ensure you are in the best possible financial position. The 5-P rule illustrates this well:

Prior Planning Prevents Poor Performance (PPPPP)

Whether you are 25 or 55 or any other age, the greatest step you can take to ensure that you are not part of this unhappy 51-60yo demographic in the future is to plan for your retirement today. Set out your plan to achieve your retirement goals and this certainty will ensure that you lead a much happier life.

Your money will then in fact, lead to your happiness.