There’s a well-known saying: “Money can’t buy happiness.” Do you agree?
No. It is people’s habits that get in the way of happiness, not money. Home ownership, for example, rarely makes people happy when they end up commuting an extra hour or two from the new house and family, and are probably unable to enjoy their hobbies. The looming debt of the mortgage can be another reason for unhappiness.
We seem to go to great lengths to make ourselves unhappy? Why do you think that is?
Making their decision, buyers overweight the material possession and underweight the impact it has on their daily lives. Buying does make us feel good due to the properties of the immediate reward. However, this wears off with time.
What do you think is the solution?
You should buy yourself good times: go on a trip or spend time with family or friends. A bike is a great example. If you use it to brag about it at work, then it is a material possession and unlikely to make you happy. If you enjoy the rides, that will likely give you some happiness.
Decumulation seems to be a complex undertaking. How can retirement be structured to increase happiness?
Saving to ensure we don’t run out of money before we die is a terrible motivation. This is a desperation model. Getting workers to think about how they want to spend in retirement and save for these goals is more promising. We call this the aspiration model.
In your opinion, what should the financial industry do?
The industry should invest in research on money and happiness. This is extremely relevant for financial advisors so they can help their clients achieve their goals.
Why is there so little demand, if experts consider annuities helpful?
Without complicating it, annuities are not emotionally meaningful goals, so they aren’t very compelling to many of us. A concept like the aspiration model might make them more meaningful and attractive.