Are we Happy Yet?

How's that whole pursuit of happiness thing working out for you? Are you happy? How do you know you're happy? Just how happy are you?

Recently, Federal Reserve Chairman Ben Bernanke said that we must look beyond economic indicators because economics isn't just about money, it's about promoting "the enhancement of well-being." 

Welcome to the world of Happiness Studies, and Happiness Economics, a concept also known as "Hedonomics".  Bernanke explained what many academics have known for years, that once basic material needs are met, more wealth isn't shown to make people happier.  This is known as the Easterlin Paradox. Recent studies have shown that any income above about $75k does not make a person happier (Ok, I'm sure that depends on where you live, but you get the point).  Americans are wealthier than they were 60 years ago, but apparently no happier.  There is what's called the “hedonic treadmill” hypothesis, holding that we quickly adjust to improved situations, or nicer things, and no longer delight in them, and also that happiness is relative (the point I was raising last week).  A Harvard professor wrote a book talking about how people constantly misjudge what will make them happy. He says we believe things like variety and more choices will make us happier, but that usually they don't, and we are then disappointed by what we thought would make us happy.

So if more wealth doesn't make you happier, what does?  Surveys have consistently shown that physical and mental health, the strength of family and community ties, a sense of control over one's life, and opportunities for leisure activity trump having more money when it comes to happiness.  It also turns out work is an important factor in happiness, and interestingly, so are relationships with women, for both sexes.
So how do you know how happy you are?  I mean can happiness be measured and compared?  Apparently, yes!  One measure of happiness is this Micro-econometric happiness equation: Micro-econometric happiness equations have the standard form: W_it = α + βx_it + ε_it , where W is the reported well-being of individual i at time t, and X is a vector of 3 known variables including socio-demographic and socioeconomic characteristics.
Did you get all that?
Don't laugh! You would be amazed to know how much serious scholarly work is being done in the field of happiness.  The Stanford Business Journal recently included an article showing how happiness correlated strongly to the use of time.  Feeling like we have control over the use of our time is big.  While some findings on the subject of how we spend our time were intuitive (like spending time with people being something that makes us happy),  I particularly liked the advice that one could enjoy experiences without actually spending time doing them.  "Research in the field of neuroscience has shown that the part of the brain responsible for feeling pleasure - the mesolimbic dopamine system - can be activated when merely thinking about something pleasurable, such as drinking a favorite brand of beer or driving a favorite type of sports car. In fact, this research shows that people sometimes enjoys anticipating an activity more than actually doing it."  This is obviously consistent with the finding that the actual experience is often a disappointment.  Also, "To increase happiness, it can make sense to focus on the here and now -because thinking about the present moment (vs. the future) has been found to slow down the perceived passage of time. Simply breathing more deeply can have similar effects."  While we can always make more money, we can't make more time.

Some have suggested that happiness is a genetic thing.  You're either wired for it, or you're not.  Researchers at the University of South Florida have uncovered a connection between low expression of a gene called monoamine oxidase A (MAOA) and self-reported "happiness" among women. But not among men.  And this is self-reported happiness, or "subjective well-being", rather than the measured kind, I guess.

So if you're not happy can you get happy? Maybe hang some inspirational posters around the office?  Or maybe you need to be nicer to your customers and employees.  Tony Hsieh, CEO of Zappos, wrote a book called “Delivering Happiness”, and built his company’s culture around "using happiness as a framework [to] produce profits, passion, and purpose both in business and in life".  The company has grown it's business by “wowing” customers with great service and lots of surprise freebees to make them feel special, and to prove that maximizing well being is good for profits.  Like many companies, Zappos has discovered that there's a quantifiable correlation between keeping their employees happy  and an improved bottom line.

In 1972, the King of Bhutan proposed we measure a country's success by measuring it's Gross National Happiness (GNH), rather than it's Gross Domestic Product (GDP).  Right now, America is looking at some pretty paltry GDP predictions, so maybe we too need to seriously consider trying to grow our GNH score instead.

And your personal happiness quotient?  Did you apply the equation above and determine you're just not as happy as you thought?  I say don't work an extra shift so you can buy a new pair of shoes, but instead, imagine what it would be like to hold the shoes, maybe while laying on a warm, sandy beach, on your own private island, sipping a margarita, with a woman, one with the happiness gene, while breathing very slowly…..  

For what it's worth, there's also a study that came out this year showing that too much happiness can make you unhappy.

Keeping Up with the Fake-Rich

Wealth is relative.  And I don't mean anything hokey like "You're rich if you have love", or "You're rich relative to the majority of the world's population, who live in squalor in countries whose names you can't pronounce".  I think people decide whether they're rich enough by comparing themselves to their friends and neighbors, or more precisely, to what they think their neighbors are earning.  And you're probably wrong about how much everyone else earns.  Chances are your neighbors aren't as rich as you think.  

Some people can't sleep at night because they worry about money, and for that problem, I recommend reading the U.S. Census bureau data, it might make you feel better about your financial position, and it might put you to sleep, but either way, you win!  

Do you know the median household income in Beverly Hills? $83k.  Surprising?  The median U.S. household income is about $50k.  Of course, that varies tremendously according to where you live.  In Great Falls, VA, the median family income is over $367k.  In Flint, Michigan, an income of $50k puts you in the top 30%, while in Nassau Co., NY, that $50k puts you in the bottom 27%.  Now $100k may put you in the top 31% in Seattle, but in Arkansas, Missouri, Mississippi, Alabama and Tennessee, you are in the top 10%.  In some parts of Michigan, a $178k salary gets you into the fabled 1%.  Of course, the median home price in Flint is $51k, so you probably don't need that much money to live pretty well there.  And unless you live in Flint, those aren't the neighbors to whom you're comparing yourself.

Going back to the example of Beverly Hills, let's look not just at the median household income, but the percentage breakdowns of income distribution, which means how many people are earning which amounts.  Only 18.6% of the 34,000 residents of Beverly Hills, for example, earn over $200k/year, and granted, that's quite a few people, but that means that the other 81% of the population is NOT.  The lady serving you coffee at Nate N' Al's isn't making $200k.  Neither is the guy selling you a tie at Sacks.  Those people may or may not be the ones to whom you compare your income, but there are a lot more of those people in BH than you might think.

Anecdotally, most of us can name someone who lives in a really fancy house, or drives a Bentley, but we happen to know that person is broke.  Is that person the exception, or the rule?  Can you judge your neighbor's wealth by outward appearances?  Probably not.  So if you're measuring your success against your neighbor, who may be fake-rich, can you find something else to measure your success against?  How about something hokey, like happiness?  Are you getting a good return on the energy invested in comparing and competing with the neighbors,  and what are the opportunity costs? Where else could you be putting that energy?   Are you just working really hard to create the illusion that you are wealthier than you are, so that your neighbors, who don't earn as much as you think they do, will think highly of you?  The question is not whether you should drive a Bentley ---- I'm not here to judge!  The question is: Are you happier driving a Bentley than you would be if you used that $250k for something else, and what are you sacrificing in order to create and maintain this image?  Remember, sacrificing doesn't always mean going without.  Even if you earn an exceptionally large salary that goes far beyond providing for the current and future needs of your family, there still are different choices you can make with the allocation of extra money, and only you can choose which action feels most consistent with your values.

In Malawi, by the way, the median household income is $596.  A year.  I'll bet your typical Malawian also compares his income to his neighbor's. It's just what we humans do.  I wonder if his level of happiness is pretty much the same as yours.  If he makes $597 this year, he'll have to choose what to do with that extra dollar.  Maybe he could use it to buy a copy of the Malawian Census bureau data.

Staying Gold

After weeks of celebrating the remarkable strengths and talents of all those beautiful young Olympic athletes, the party's finally over.  And what a disappointment it must be for those athletes to go from worldwide adulation to a world of financial uncertainty.  After all, coaches and sports equipment don't come cheap and it's hard to hold down a normal job while also training for several hours every day.  Sure, the handful of big names will go home from the games with sweet endorsement deals, but everyone else?  Their future might not be quite so shiny.

Ryan Lochte may have big plans for getting work on a reality TV show, but we'll see if that's enough to help his parents stave off foreclosure on their Florida home, and Gabby Douglas may end up spending the majority of her endorsement money bailing her mother out of the substantial debt which forced her to declare bankruptcy earlier this year.  On Average, five of the top ten American athletes in their event make less than $15,000 a year from the sport.  Just two of the top ten earn more than $50,000 annually from their sport.  And if you're not in the top ten?  Except for a few runners, you probably make next to nothing.

But what about the winners of those Olympic medals?  The gold medal comes with a $25,000 prize, the silver comes with $15,000 and the bronze will bring you $10,000.  Although these amounts are taxable, if your income was only $15,000 and then you earned another $10,000 from the Olympics, probably taxes aren't your biggest problem.  Dinner is.  And so is health insurance!

With the kind of lean, muscular bodies most of us only dream of ever having, the Olympic athletes may appear to be the paragons of good health and vitality, but try getting enough health insurance to cover massively expensive sports injuries, especially if you have pre-existing conditions from past injuries.  Blue Cross /Blue Shield sponsors the Elite Athlete Health Insurance program (EAHI), but very few can qualify to receive it.  There are only 1,000 such policies available, and each sport gets a specified number of them (150 for track & field; 5 for badminton, for example). But these policies are for the small stuff, like office visits, and they don't cover catastrophic injuries.  So athletes generally stay on their parents' plan as long as possible (age 26 now with the Affordable Care Act), or get on a spouse's policy, or take out additional coverage individually.

But all that struggling is worth it if you win one of those shiny gold discs, right?  Well, actually, it just looks like gold.  It's 93% silver and 6% copper.  Just 1.34% gold.  Sorry.  If you melt it down, the raw materials would be worth about $650 at today's prices.  The price of the silver and copper in the silver Olympic medal is worth about $335, and the mostly copper Bronze medal is worth about $5, so you might as well keep those for sentimental value.  However, some medals have gone for a lot higher prices at auction, like the gold medal won by Mark Wells of the 1980 "Miracle on Ice" U.S. hockey team, which recently sold for $310,700 at auction.  The better the story, the higher the price.

Same goes for endorsement deals, really.  Clearly, champs like Usain Bolt and Allyson Felix will get big endorsement deals, but what about that inspirational Oscar Pistorius, the double amputee who just raced against the best sprinters in the world on his crazy looking artificial blades?  Can't you just picture that face of inspiration on your Wheaties box? Yeah, I'm sure General Mills can too, and you know that tape the athletes seemed to all have on their bodies?  It's called Kinesio tape and I just saw a picture of Kerri Walsh on the box of Kenesio tape that was for sale at a high end sports equipment store.  Do you think she's on that box just because she likes the tape?  Hey, tape won't cure everything so she needs to pay for that health insurance (besides feeding her 2 kids and her 6'3" self).

Kerri will be glad to know that women make more money on endorsements than men do.  And to be fair, who's more likely to convince you to buy something, those pretty little gymnasts or big oafy Michael Phelps?  Sorry Michael.  Also, you have to be in a popular sport to make good money off endorsements.  No matter how good you are at handball, no one outside of the ten people who follow handball knows who you are, and McDonald's probably won't decide that paying you to tell people you eat their food is going to sell more Big Macs.

So just remember, to turn your Olympic glory into some real money, you should be a really cute female, preferably the best at a really popular sport, and have a compelling personal story, like having overcome a tragedy or other adversity.  If you can arrange for all of that, you have the potential to pull in the kind of deals that will pay off the financial disasters in your family's past and avert those which might lay ahead, especially as a result of not having enough health insurance.

My friend Izzy played a boxer in the Kaiser Permanente ad they were running during the Olympic coverage, and that got me to thinking, what if an athlete could get an endorsement from a health insurance company?  Maybe instead of the insurer paying the athlete, they could work out a trade, and just simplify everything.  Maybe the insurer could also throw in a policy for the athlete's broke parents, who've been paying for billions of gymnastics lessons and world travel?  Forget Wheaties!  Maybe if Ryan Lochte did an add for Bank of America, that little foreclosure problem could just go away.   I'm just thinking creatively here, and wondering what the tax implications of this kind of trade would be…

Anyway, start negotiating, kids!   Now that you're done playing volleyball, it's time to start playing HARDBALL!