Sep 27

Financial Planner looks at Pursuit of Happiness

Life Satisfaction in Australia

Our Financial advisors in Newcastle have great job satisfaction and enjoy working with our customers and helping with their financial well being and wealth management.  They're a happy bunch and we thought it only right to write a summary compiled from research into happiness and life satisfaction of 13,000 Australians conducted by AMP/NATSEM.


To Be Happy


Get a job that pays well, but not too well (relatively close to and preferably above your peers brings greater happiness).  Buy a nice house and spend money on renovations that increase the value of the asset (preferably not in a capital city), put money into increasing your professional opportunities, but don’t spend too much on a big TV, furniture or car.   Put extra money into your super and open a savings account.  Cut up your credit card and pay your bills on time.  Get married and have four children.  When you start to feel pretty pleased with your life, but still not totally satisfied, don’t buy an investment property.  Focus on reducing your debt, then book yourself a nice holiday (which you share with your family). 


History teaches us that in the human race there is nothing new and what Aristotle wisely concluded 2,000 years ago is relevant today – that "happiness is the meaning and purpose of life, the whole aim and end of human existence".  Similarly the Dalai Lama has been quoted as saying “Human happiness and human satisfaction must ultimately come from within oneself.  It is wrong to expect some final satisfaction to come from money or from a computer.”  Australia is one of the happiest countries in the world, ranked equal third out of all OECD countries in terms of overall life satisfaction.  Persons who are in good health, living with a partner, who own a house and those who are a member of a club are more satisfied than those who are not; and the younger and older generations are more satisfied than those who fall between.


Australian men and women generally share similar satisfaction levels with their life overall,  their financial situation, home and salaries.  Women are more likely to report lower levels of satisfaction than men in all relationship measures except for their relationship with their own children.


There are links between income and happiness.  Wealth also has a strong association with overall life satisfaction, and particularly  wealth types such as money in the bank, superannuation and the family home.  Being financially better off and spending money wisely can make people happier.


Today, Australia’s economy is the envy of many other countries, especially as it has managed to emerge from the GFC relatively unscathed.  Australians can therefore be proud that we are succeeding in an overall measure of national wellbeing other than GDP.




What should a person do to maximise their chances of life satisfaction and happiness?


Get a job that pays well, but not too well.  Buy a nice house but don’t spend too much on a big TV, furniture or car.  Put extra money into your super and open a savings account.  Cut up your credit card and pay your bills on time.  When you start to feel pretty pleased with your life, but still not totally satisfied, don’t buy an investment property.  Focus on reducing your debt, then book yourself a nice holiday!



What Makes Australians Happy?


So did what we spent our money on make us happy?  In 2009 we spent $30 billion on takeaway dinners and eating out, consumed 4.5billion cans of coke and 5 billion cans of beer.  Whilst our average weekly wages increased by almost 6 percent, so did our credit card bills, with overall credit card debt increasing to $45 billion.


Despite our relatively affluent lifestyles the question remains – are we satisfied with our lives?


Globally among OECD countries, Luxembourg has the highest GDP per capita levels, and Mexico the second lowest; yet both countries are ranked equally in terms of life satisfaction.  Australia is ranked equal third with the United States and Sweden in terms of overall life satisfaction behind Ireland, Norway and Denmark who rank equally in first place.


Overall Australians are generally happy and most satisfied with their safety, home and neighbourhood, followed by their job and health, but least satisfied with their levels of free time, involvement in their local community and their financial situation.  Homeowners are most likely to be very satisfied or satisfied with their lives, followed by buyers and renters.  However, with house prices continuing to increase compared with average wages, Australians have to work harder to borrow more money to realise this dream.


Whilst approximately 11 million Australians are involved in some form of paid work, about 900,000 of these employed Australians have identified themselves as being “underemployed”.


 Australian workers are most satisfied with their job security, followed by flexibility and the nature of the work itself and, not surprisingly, least satisfied with their working hours and the pay they receive.  The amount of hours spent at work is one area that Australians are not too happy about – with a combination of a relatively high incidence of both short and long working hours in Australia.  This is unusual among OECD nations as many have high proportions of their workforce employed for long or short hours, but few have both.  Employed persons working long hours (50 hours or more) has increased over time in Australia (from 13% in 1979 to 17% in 2008).


It appears that the greater flexibility enjoyed by people not working full-time increases their satisfaction levels, despite the figures indicating underemployment.   Perhaps the greater proportion of Australians working long hours each week, when in full-time employment, contribute to this finding  of decreased satisfaction levels.


Australians are relatively happy with their family relationships; however people from blended families were much less likely to report being satisfied or very satisfied with their step-children and step-parents.


The share of housework is also an area where about one quarter of the population report being dissatisfied and women are twice as likely to be dissatisfied with their share of the housework as are men.


What generally makes people happy?


In their middle years, people start to build up their families, buy a house and increase their work responsibilities – a juggling act that no doubt leads to increased stress levels and decreases overall life satisfaction.  Once the children are grown up and the mortgage paid off stress reduces; and with more free time to enjoy themselves they become happier and consider they have more control of their lives and fewer responsibilities, have achieved planned for aspirations as well as having lived to the age they are.


People aged 30 years and above who do not have any children, are less likely to report being very satisfied with life than those who do have children.  Interestingly, 40% of respondents with four or more children reported being very satisfied with their life overall, whereas those with one child are not as happy.  (Perhaps this could be because the one child may be a new infant since there was no age differentiation).


In terms of education, interestingly those with no post-school qualifications are more likely to feel very satisfied with their life than those holding some sort of higher educational degree. However, when combining the satisfied with the very satisfied, there is little difference between all education levels.


Findings support what has been widely argued – that people living in big cities are more likely to be stressed due to less time to do what they prefer, traffic, crowds, crime, increasing house prices and less engagement with nature.


Does Money Really Buy Happiness?


Recent research involving Australia and other OECD nations has shown there is a positive relationship between income and happiness – that is, (not surprisingly) richer people tend to be happier than poorer people.  On the other hand, research has found that people who win Lotto rated good health and relationships as more important than having a lot of money (or is this because they now have the money now?).  People who are satisfied with their lives tend to have higher incomes than people who are unsatisfied.  However, people who gave themselves a perfect score for life satisfaction had lower median incomes than even those people who scored in the average range.  Higher incomes are still associated with higher levels of happiness, but only very slightly.


It should be noted that this does not necessarily mean that money can buy happiness; only that money is associated with happiness.  It may be that the opposite is true – for example, that happy people are more productive in the workplace and therefore receive higher salaries.


It has been argued that a person’s level of income does not matter as much as how much a person earns relative to their peers.  The rank of a person’s income in comparison to other people in their community has a significant bearing on happiness, along with overall income.  So a person who earns $60,000 compared to his or her friends who earn $40,000 could be happier than a person who earns $60,000 with friends earning $80,000.


Wealth, as well as income, has an impact on life satisfaction.


Debt requires a portion of income to be sacrificed to service the debt, and can leave a person vulnerable to personal and economic shocks.  There is a strong positive relationship between wealth and life satisfaction, even when accounting for other factors such as personal characteristics and income.  Holding debt reduces the satisfaction achieved from having assets.  As household wealth increases, more wealth is required to produce a similar increase in expected happiness.  Those with no debt have higher satisfaction levels, but this then decreases for debts up to around $100,000, where debt is negatively associated with life satisfaction.  Above this level, the trend changes, and debt becomes positively associated with satisfaction.  Why this paradox  that small amounts of debt are depressing, but large amounts are satisfying>  Perhaps because higher debt is strongly associated with plentiful assets, such as mortgages over the family home, and lower levels of debt are often associated with bad debt such as credit card.


It is worth noting that large debts – those greater than $100,000 are associated with valuable assets which increase life satisfaction, so it is likely that the positive relationship between large debt and life satisfaction is due to the assets acquired using the large debt, rather than debt intrinsically satisfying.


69% of households own their home (with or without a mortgage), and the average value of the family home is $412,000, with mortgages over the family home averaging $142,000.  Contrast this with households with superannuation had an average of $110,000 in superannuation (ABS:2007).


People who own their own homes debt-free reported significantly higher happiness levels than those with mortgages and non-home owners.


Interestingly, owning an investment property, debt-free or otherwise, did not have a significant relationship with happiness levels when other factors were taken into account.  Shares ownership is associated with higher levels of happiness – more so by the very wealthy.


Cash in the bank has a positive relationship with happiness, and superannuation balances correlated with higher levels of happiness.


“Bad debt” (typically refers to debts used to buy things that depreciate quickly and do not provide income, such as consumer debt) is associated with lower levels of happiness, since these debts effectively decrease future disposable income.  Managing bad debt can be stressful, and credit card debt and overdue bills are strongly related to low satisfaction levels.  “Good debt” (usually refers to debts used to buy things that appreciate in value such as a home) can increase future income (such as investments or study expenses) and is associated with higher levels of happiness.  Mortgage debt is associated with higher levels of happiness – possibly because larger mortgages are often associated with more expensive houses, and research shows that items purchased for income and additional security outweigh any dissatisfaction associated with the strains from managing the debt.




Satisfaction comes from having the means to consume, not from looking at a healthy bank balance.  The reason for a six figure income or large share portfolio is to ultimately allow a generous level of consumption.  Research, in the two countries where data is available on consumption and happiness levels (Britain and Hungary), shows that consumption is positively correlated with happiness, although the strength of the relationship varies between countries – in Hungary the relationship is much stronger than in Britain.  (We wonder if this is because consumption has always been an option in Britain, but only relatively recently in Hungary – since it left the communist block.)  Research further shows that a person who spends a lot of money on discretionary items such as holidays or a home renovation might be happier as a result of their expenditure.


Spending money on meals eaten out (considered a consumer non-durable) did not have a strong positive relationship with happiness levels, whereas expenditure on holidays (also a consumer non-durable) does.


An analysis of discretionary consumer durables shows that there is almost no statistically significant relationship between household expenditure on consumer durables and the life satisfaction of individuals within the household.  For every person who is thrilled to drive their sleek, powerful new car, there is another person upset that their old faithful car was written off in the first place.


It is necessary to emphasise that this analysis only shows that income, wealth and consumption patterns are correlated with higher levels of happiness – it does not mean that they cause happiness.


Source: LeenaneTempleton – Noelene Stevenson


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