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Does money make us happy? The obvious answer to this is “no.” There are plenty of examples of people who have had lots of it and yet been miserable. However, the flip side of the argument is that a lack of it – or difficulties with it – can make life very difficult. So, where does money fit in terms of our overall state of happiness in life and how can you achieve financial well-being?
Looking deeply into the psychology of money tends to reveal that we’re all very different when it comes to how we cope with our cash. However, there are some general themes and personality types that can provide some helpful insight into the ways that we think about money. For example, many of us find delaying gratification very difficult but it can mean better results in the long run. A famous 1960s test – the Stanford marshmallow experiment – gave children the choice of eating a marshmallow straight away or waiting and getting two as a reward for delaying gratification. The children who were able to wait had better life outcomes in follow up studies. However, it’s difficult to wait, especially as we live in an era when everything is instantly available. Spending hits all the pleasure zones in the brain – saving does not – and, as many of us have trouble visualising our future selves, saving feels like giving money to a stranger!
Sometimes, getting to grips with the psychology of money can be assisted by working out whether you fall into a specific financial personality type. For example:
Whatever financial personality type you might fall into there are many different ways to define financial well-being. Some, for example, would focus on low debt and high net worth as being the ideal combination of factors to achieve it. The US Consumer Financial Protection Bureau defines it as “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow enjoyment of life.” It might mean something subtly different to everyone but, overall, it’s generally being able to use the money you have to enjoy your life and not having to worry too much about a lack of it. Whatever it means to you, most people’s financial well-being objectives will include:
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read about Alex Hartley
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