Happiness is a Financial Plan

“Happy people work differently…and new research suggests that happiness might influence how firms work, too.” So begins Walter Frick’s article “Companies in Happy Cities Invest More for the Long Term” in the June issue of the Harvard Business Review. Frick cites a recent paper by Tuugi Chuluun of Loyola University Maryland and Carol Graham of the Brookings Institute who found that companies located in places with happier people invest more in research and development (R&D).

Building on previous research that found that individuals’ happiness sparks a proclivity for risk-taking, Chuluun and Graham set out to find whether happiness also affected the way companies invest. They compared U.S. cities’ average happiness, as measured by Gallup polling, with the investment activity of publicly traded firms in those areas. Initially, the researchers found that significant investment in R&D was, indeed, correlated with a high local level of happiness. They then controlled for various factors that might make firms more likely to invest–like size or industry–and for indicators that a place was desirable to live in, like high wages. The idea was to isolate a direct connection between happiness and future investments. And, they found one.

The correlation between happiness and R&D investment was particularly strong for younger firms, which Chuluun and Graham attribute to a “less codified decision making process” and the possible presence of “younger and less experienced managers who are more likely to be influenced by sentiment.”

The happiness-R&D connection was also stronger in places where happiness was spread more equally. That is, firms seem to invest more in locations where most people described themselves as “relatively happy,” rather than in places with large gaps in the distribution of happiness and well-being.

While these findings certainly illustrate a link between happiness and companies’ long-term planning, I would argue that a similar connection exists for folks planning and saving for retirement. Although in this case, the valuable long-term view sparks happiness, not the other way around!

Research from Northwestern Mutual provides the data to back me up. Their 2014 Planning and Progress Study found that the more discipline individuals bring to their finances, the more financially secure they feel in the present, and the greater likelihood they’ll be happy in the future. Specifically, the study found that 70 percent of “highly disciplined planners” feel “very financially secure” compared to 51 percent of “disciplined planners,” 34 percent of “informal planners,” and 17 percent of “non-planners.” What’s more, highly disciplined planners who are retired are much more likely than non-planners to say they are “happy in retirement” (91 percent compared to 63 percent).

Interestingly, the most disciplined planners come from opposite ends of the age spectrum. Fifty-nine percent of younger adults (18-39) and 54 percent of more senior adults (60+) identify themselves as disciplined financial planners. Adults who are 40 and 59 are the most financially unprepared; more than half (51 percent) identify themselves as informal or non-planners.

Overall, the study found that less than one in five U.S. adults (18 percent) consider themselves highly disciplined financial planners (that is, those who have set exact goals and have developed specific plans to meet them). Nearly half of adults (46 percent) describe themselves either as informal planners or admit to not doing any planning at all. In addition, 60 percent of all study respondents said their financial planning could use improvement. The number one roadblock, cited by more than one in four (27 percent), was a lack of time.

Therefore, in the lazy days of summer, I propose a challenge: Set some time aside to think about and plan financially for the future. If you truly feel like you don’t have the time for that, consider another challenge issued by Carl Richards, the author of The One-Page Financial Plan: A Simple Way to Be Smart about Your Money. Richards, who has a knack for entertaining with his “back of the napkin drawings,” suggests that a self-imposed media fast could increase your happiness. See the image below for one of Richard’s “napkin drawings” on happiness and the media:

graph715As Richards writes, “Let’s hit the pause button for a short time and see how it feels. How do we feel during a day when we focus on what’s right in front of us versus what’s happening halfway around the world?”

I suggest that rather than tuning into CNN and spending time worrying about how events in Greece might unfold over the summer or whether interest rates will rise in the United States come September, you spend more time with your family and friends. Trust me, you can’t do anything about the situation in Greece or the Federal Reserve’s monetary policy. However, you can create some precious family memories! And I’m betting that, in addition to making you happy, some of those conversations on the beach or around a board game will give you new insights into your financial plan and increase your motivation to save for the future.

Here’s to a future filled with happiness and joy!

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