Homes, Cars, Experiences and Happiness

I am not sure what to call this week’s article, so I am just going to throw the topic out there. It involves something I read recently on the topic of homes, cars, experiences, and happiness. Get ready for some bullet points.

• There have been lots of studies over the years on the topic of whether buying a new home increases your happiness. The studies have been done all over the world.
• One German study was nearly two decades in length. Another was student housing for colleges. There was even one done right here in Ohio.
• The findings were interesting. At least to me. First, the movers reported an increase in their satisfaction level with where they now lived. This shouldn’t really be a surprise.
• The next two points surprised me. First, while their satisfaction with where they lived increased, their overall happiness did not rise.
• Next, with the study in Ohio, homeowners overall were not any happier than renters. Although, the homeowners were 12 pounds heavier on average. Not sure why that was reported, but it is notable.
• As a bonus, similar findings exist for vehicle purchases. Initial happiness with the car purchase, but overall happiness does not increase.

Let’s shift a bit to spending on experiences.

• In another survey, people were asked to think back to a material purchase they made. You know, new clothes or furniture. Then they were asked to think about money they spent on an experience. It could have been dinner out with loved ones or a concert. 57% of Americans said the experiential purchase made them happier. Roughly 1/3 of the respondents said the material purchase brought better memories.
• Let’s talk about a long-term study on spending for those 50 and older. Participants are asked to track their spending on pretty much everything. From appliances to housing to food to art. Researchers then connect spending choices to happiness. Guess which category is the only one that connects to happiness? Those expenditures on “leisure.” Things like trips, concerts, movies, sporting events and the like. People who spend more on leisure report greater satisfaction with their overall lives.

I figure I should share some final data points related to how much Americans spend on housing and vehicles.

• I have seen two different sets of data of how much Americans have to work to pay for mortgages. One set is 40% of income. The other set says over 60%, which I think their analysis is too limited, so let’s use the 40% number. This means just over 3 hours of each workday is dedicated to paying the average mortgage.
• The data I have on vehicles is older. It shows the average household spends 20% of income every month on car expenses. So, 1/5 of our workday is just to pay for vehicle-related costs. I wonder if this data still holds true with the average car payment now $700? Actually, I really do not want to know.
• Between these two items, just under 5 hours of the average American’s workday is committed to paying the average monthly housing and vehicle expenses. I don’t know why, but this number is terrifying to me.

What does this all mean? Even though we spend so much on housing and vehicles, studies show this does not increase our overall happiness.  Much of this is due to hedonic adaptation, which simply means after an initial increase in positive feelings we return to a stable level. Data for experiential spending is different, and I will share more of that in another article. However, if you are wanting to increase your overall happiness, it may make sense to take a moment and think whether to spend the funds on the big new house or the trip with loved ones.

I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.