Smart Money Podcast: Money and Happiness: What’s Happiness Really Worth?

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

This week’s episode kicks off our series about the relationship between money and happiness.

Check out this episode on either of these platforms:

• Apple Podcasts

• Spotify

Our take

Let’s start with the basics: What really is “happiness”? The answer depends on who you’re asking. A scientist might have one way of measuring it, while others might be more concerned with general feelings of how much joy or contentment they experience. Clinical psychologist Robert Puff, host of the “Happiness Podcast,” likens happiness to floating down a river: You’re accepting what’s coming your way and embracing the inevitable changes. Fighting against the circumstances of your life is bound to leave you unhappy, Puff says.

When it comes to creating a happier life, start by knowing yourself and how you can leverage your personality traits to accomplish your goals. If you’re someone who needs motivation from friends or family to get things done, for example, enlist the help of loved ones to create that better life. Using a goal-setting framework can help, too. With an understanding of happiness and how you can create your own, now you can dig deeper into the role money plays. If you’re hoping that using money to buy things to become happier will work — you’re probably mistaken. Think about money as a powerful tool: You need a certain amount to cover your basic needs, but over-reliance on it can corrupt a path to genuine happiness or contentment.

More about managing money on NerdWallet:

Needs vs. Wants: How to Budget for Both

Do You Want It, or Are You Sad? How Feelings Affect Finances

Why Managing Your Money Starts With Your Emotions

Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

Sean Pyles: So what really is happiness? How does money help or hinder our own happiness? And what can you do to improve your relationship with both to make the life that you want?

Morgan Housel: There's no such thing as an abject level of wealth where, OK, once you have X dollars, now you're wealthy. Everything is just relative to other people. And when you move the goalpost of who you are comparing yourself to, that spectrum of needs just has no ceiling. It can grow forever.

Sean Pyles: Welcome to the NerdWallet Smart Money podcast. I'm Sean Pyles.

Sara Rathner: And I'm Sara Rathner.

Sean Pyles: This episode kicks off our Nerdy deep dive into the relationship between happiness and money. We'll explore what happiness and money are really worth, how we get in our own way of making a happy financial life and what you can do about it.

Sara Rathner: Sounds pretty heavy. Sean, why are we doing this?

Sean Pyles: Yeah, well, basically because I want to. The idea for this series came from witnessing this seemingly perpetual conversation on social media about hustle culture and how to build the life you want through financial success.

The underlying premise is often that money is the best route to a happy life. And the other side of the conversation typically goes something like this: In a capitalist society with such vast wealth inequality and economic hardship, we can't rely on money, of all things, to bring us happiness.

But the truth is that people are going to have a really hard time being happy without money. So I got interested in dissecting these two ideals that drive how people structure their lives. The hunt for happiness and for prosperity. How are these ambitions connected and where do they conflict?

Sara Rathner: It's just that the idea of happiness feels very nebulous and it can mean different things to different people. And money can also be nebulous because what counts as, "a lot of money," can also mean different things to different people. For some people, $10 is a lot. For some people $100,000 is a lot.

And so even still, though, money can be more concrete because it's numbers. And I can take out a dollar bill and go to a store and look at the numbers posted on the shelf and say, "Here's how much I can get with this dollar," which more and more is very little, but at least I can know definitively, here's how much I can get for this amount of money. But to say, "Here's how happy I am," feels a little mushy. And it depends on the day to day.

Sean Pyles: Right. Maybe hour by hour. And I completely agree.

Sara Rathner: Sometimes minute by minute.

Sean Pyles: Yeah. And if we're being totally honest, I can sometimes take issue with the idea of "happiness," and its storied pursuit because of how mushy, nebulous it can be. It can sometimes mean nothing, or maybe it's everything.

So, to kick off this series, in this episode we are exploring the sometimes strained relationship between money and happiness. But before we hear from the experts, Sara, I want to hear about your idea of happiness. What does it mean to you and what role does money play in your happiness or not?

Sara Rathner: I think for me it means being able to say yes to the things that I need or want to do, without stress about how I'll make it work. And that can be something fun, like trying out a new restaurant or something more serious like paying out of pocket to see a specialist for a health issue and knowing that I can handle the cost. And that just brings me a sense of freedom because I can say yes to things. And I'm not going to have to say no to a bunch of other stuff to afford the thing that I need to or want to say yes to.

Sean Pyles: Yeah, and in that case, happiness is somewhat defined by a lack of anxiety or stress around how you would afford something.

Sara Rathner: Yeah. There's a lot of comfort in knowing that when you have to pay for something, you'll be OK.

Sean Pyles: For me, happiness, especially as it relates to money, is kind of similar to you. It's about not having to think about money all that much, to be honest. Being satisfied with what I have and having the flexibility to do what I want when I want.

And listeners, as we go through this episode, I want you to think about that central question. What does happiness mean to you? And what role does money play in your happiness?

Sara Rathner: And we want to hear what you think, too. To share your idea of happiness with us, how money does or doesn't fit into it, leave us a voicemail or text the Nerd hotline at 901-730-6373. That's 901-730-NERD or email a voice memo to [email protected].

Sean Pyles: Let's start by defining, with the help of a couple of experts, what happiness is before we even get to the money part. That question around defining happiness seems like a simple one, but it's not.

I talked about this in a couple of separate interviews with Dr. Robert Puff, a clinical psychologist based in Newport Beach, California, and host of the "Happiness Podcast," and Gretchen Rubin, creator of the Happiness Project and its attendant book and podcast. To start, I wanted to get a sense from each of them of how they define happiness.

Gretchen Rubin: There are like 17 academic definitions of happiness. So what I have really come to believe is that if you're a scientist, you have to have an exact definition so that you know what you're measuring. But for the regular person, I think it's fine that happiness can mean joy or peace or satisfaction or well-being or contentment, whatever you want it to mean.

And the big question — we can get very bogged down in definitions. I think it's more helpful to think about, well, whatever happiness is for me, how can I be happier? This week, this month, this year, what can I do within my conscious thoughts and actions that can move me further along in the direction that I want to go? And if you're thinking about peace and I'm thinking about bliss, well that's OK. Because it's more about moving in the right direction, than agreeing on exactly what we're talking about.

Robert Puff: I think it's more of a state. Happiness is where you're just saying, all is well, it's just what is right now, whatever is, is well. It doesn't have to be different, doesn't have to change. What life is giving right now is working for me because I'm not fighting life. I'm not wanting to change it. I'm not wanting to hang onto it. I'm flowing with life.

So, the analogy would be going down a river. If you float down a river, you know kind of float around the rocks, and when it's rapids, you roll with them and when it's calm, you just flow with it. But when you fight life, it's like standing in the river. You say, "I want to stay right here." And life says, "No no." The river says, "I'm going to go a different way." So when it goes a different way and we fight that, we suffer. Where if we flow with life, whatever life brings us, we tend not to suffer nearly as much.

Sara Rathner: But Sean, one thing I sometimes wonder about, why is there this pressure to be happy all the time? If you don't have a smile plastered on your face, rest assured some stranger will tell you to smile like you're some sort of happiness show pony.

Sean Pyles: I'm completely with you, Sara, and this is something that I asked our experts about. Gretchen actually doesn't agree that there is that pressure to exist in a happy state to the extent that maybe people like you and I do. But she does say that there should be more permission to have times when happiness just simply isn't present in your box of feelings.

Gretchen Rubin: There are some times in our lives where we are not happy. There's many conditions in which it would not be appropriate or morally desirable to be happy. There's times when we wouldn't even seek to be happy because of what's going on.

But I do think that within our own lives, I think that we should try to be as happy as we can be under the circumstances. And what I think is too bad is when there's opportunities to be happier within just our ordinary day without spending a lot of time, energy or money, just by making small changes that could bring us happiness. Whether that's by deepening our relationships to others, broadening our relationships, making us feel more energetic or more calm, allowing us creative expression. Helping us tap into our five senses for a greater sense of vitality and connection.

I think maybe people hear both. That maybe you're supposed to put your best foot forward and look at the bright side and the glass is always half full. I don't think it's the case that people don't also hear the other side of it.

Sara Rathner: OK, Sean, so how do we figure out how to get to that place where we can find more ways to be happier or more content or whatever term you want to use?

Sean Pyles: Well, one way is to explore in essence who you are and why, and how you react to both internal and external expectations of you. And Gretchen Rubin's work focuses on four different personality profiles that can help you do that.

The first one is upholders, people who readily meet those expectations. People for whom discipline and deadlines are freedom.

The second group is questioners, who question all of the expectations. They'll sometimes do something if they think it makes sense to them internally, but they won't always meet the external expectations unless you can prove necessity.

Third, obligers who readily meet external expectations but struggle with the internal ones. They need external accountability, like if you want to read more, you join a book club.

The final group is rebels. Well, they're going to do what they want to do in their own time. They don't sign up for a spin class early on a Saturday morning because they don't want to be beholden to that plan.

So, I asked Gretchen how people can leverage that kind of self-knowledge to find their own path to a happier life.

Gretchen Rubin: Often people know very well that something would make them happier, but they're just having trouble following through. So they know they'd be happier if they exercised or they yelled less or they ate more healthfully, or they got outside more, they got back into playing guitar, or they started a book group or whatever it is. They have a good idea, but they just aren't able to turn it into a habit. They're not able to turn it into a behavior.

So the question is, OK, let's say you want to exercise more. That's one of the most common things people want to do. So what do you do? If you're an obliger, you'd say to yourself, if I want to exercise, I need outer accountability. So maybe I will work out with a friend. Maybe I'll work out with a trainer. If you're a rebel, like if you say to a rebel, "Well, listen, you should just sign up for an exercise class and once it's on the calendar, you'll go." Well, you and I know that's great advice for an upholder. We love doing things that are on our calendar. But for a rebel, that's the opposite of useful, they will begin to resist it. And so —

Sean Pyles: So, I imagine you could use the same thing for financial goals, too. If a rebel really ought to be saving some money, they could put it in the same framework to get to that goal.

Gretchen Rubin: No, that's a great example. OK. And because this shows how the same messages can really be almost counterproductive.

So if you were talking to an obliger about saving, you would say, "Look, people are depending on you. People who you love might come to you and need your help. If you save, you can help them." But with the rebel, rebels love choice and freedom. So you might say something like, "Hey, if you have savings, that's opportunities you can grab. That's choices you can make."

Let's just set up the context and the surroundings and the message and just our perspective so that it suits an individual tendency.

Sean Pyles: So Sara, I took this quiz that Gretchen has on her website, and guess what? I'm an upholder. Surprise.

Sara Rathner: Yeah, no surprise there, Sean. Discipline and deadlines are definitely your freedom.

Sean Pyles: Yeah, that's true. OK, so what do you think you might be?

Sara Rathner: I actually took the quiz because I was curious, and I am a questioner, which surprised me because I'm a bit of a rule follower. But at the same time, I'm really pragmatic and if there's something that needs my effort, I kind of want to know that the juice is worth the squeeze. So if it is, then I'll do it. If it's not, then I'll say, "Can't we just do this another way?"

Sean Pyles: That's fair enough.

Sara Rathner: I don't like to take spin classes on Saturday mornings, either.

Sean Pyles: I'm with you.

Sara Rathner: So we've heard from Gretchen Rubin. Now what does Dr. Puff say about our ability to figure out ways toward more happiness?

Sean Pyles: Yeah. He doesn't really talk about categories of people or personalities, but it's more about how we react to things that are both in and out of our control.

Robert Puff: It really boils down to accepting what life has given you and flowing with that and making whatever kind of life throws you — you know, like a cat, when you throw a cat up in the air, it lands on all four of its feet because it twists and says, "I'm going to make this work." It's really how we look at it. And the key of life is always finding the way of looking at things well.

And because when we do that, what comes up inside of us is a sense of happiness. When we fight life, when we say, "This shouldn't be happening," and it's like banging our head against the wall, but this is what's happening. So doing that causes us to suffer.

So the suffering, so I'm going to say something now that, I apologize. I'm not trying to be offensive, but this might offend some people, might upset them. It's like, if we're unhappy, it's our fault. Good news is though, if we're unhappy, we can get out of it. It's completely under our control.

Sean Pyles: So, there is this idea that it seems like you are upholding that happiness is a choice. Can you talk about how people can maybe consciously or unconsciously make that choice?

Robert Puff: Yeah, I think the biggest thing comes through expectations. If we say, again, this is a money show, we say, "Well, now I'm 55 and I'm supposed to have a million dollars in my Roth IRA," and we only have $10,000. That's what we have. So how do we make that work? How do we then, maybe, do we save for it? Do we put more into it? Maybe we're going to work a little bit longer. Maybe we're going to have a more conservative retirement and share a room with someone that we love.

It's all how we look at it, and it's our expectations that things are supposed to be different than they are that causes us so much suffering.

Sara Rathner: Ooh, we're getting to the money part of all of this. That's the best part. Just saying.

Sean Pyles: Yeah. Well, we are slowly but surely, and in the second segment of this episode, we'll go full bore on the connection or lack of connection between money and happiness. But I asked Gretchen how we can sort of practice being happy, whether there are some common habits like exercising or taking up an instrument that work for everybody, or whether we're all just too different and it's going to be an individual mental and emotional workout.

Sara Rathner: Oh, so we have to workout?

Sean Pyles: Well, we don't necessarily have to, but it might be good for us. It might even make us happier, Sara.

Sara Rathner: Yeah. I could live with that. I actually am made happy by working out. I make fun. But it is something I enjoy very much.

Sean Pyles: I'm with you. All right, well, here's Gretchen.

Gretchen Rubin: There are some that are pretty universal, but how you go about that would be very individual. And then there are some, where there's a lot of variations. So like I mentioned earlier, relationships. So we are just hardwired as human beings to need strong relationships. What that looks like in practice though, is very different.

Some people want to have a huge circle of friends that they see all the time. Some want many fewer close friends that maybe they see more kind of more intimately. But we all need those social relationships. So, if you were going to say, have a habit of getting together with a friend once a week for a walk or starting a book group and seeing the same people once a month, that would be something that would tend to your happiness. The more people feel like they're in control, in control of their time, in control of the way they do their work, this really adds to our happiness. That is one of the most important things that money can buy.

Sean Pyles: And finally, Dr. Puff takes us toward this question about the relationship between money and happiness. And interestingly, this is someone who works with clients in one of the richest corners of the world: Newport Beach, California.

Robert Puff: I truly work with the wealthiest people on the planet. And I would just say, and studies really support this, it's kind of irrelevant. It doesn't make you unhappy, it doesn't make you happy. It's just kind of irrelevant.

So we have what's called a set point for happiness. We've done studies on people that win the lotto, and after six months, we know that after six months, whatever level of happiness they were at before they won the lotto, they'll be at the same level of happiness six months later. But the same is true if someone breaks their back and gets in a wheelchair and can never walk again. After six months, initially, they're going to be upset, but after six months, they'll go back to the level of happiness they were at prior to breaking their back.

There are things we can do to make ourselves happier, but money is basically kind of irrelevant.

Sean Pyles: But yet, if you look at Maslow's Hierarchy of Needs, at the very bottom of the pyramid, the most basic needs we have in order to find fulfillment starts with food, water, warmth, rest — and all four of those can be pretty hard to come by without at least some amount of money, right? So your income can have a pretty enormous effect on your ability to propel yourself into a happy life.

Robert Puff: I would argue it would create comfort. It does create comfort. Maslow, correct, did talk about the basics, but in any, again, what I have found in any circumstance, no matter how deprived you are, you can actually be very happy. And so the key of it is, learning what is essential for happiness.

Sean Pyles: Because money, at the end of the day, is really a tool and as well as we can use that to live up to our values to achieve what we want in life, that is going to give us more happiness.

Robert Puff: Absolutely. Yep. We really can do well in life. It's just we have to stop wishing to have everything and stop being afraid of losing it.

Sean Pyles: Fun fact, Sara, according to the most recent World Happiness Report, the U.S. ranks 15th in the world for happiness.

Sara Rathner: 15th, who's happier than us? Everyone?

Sean Pyles: Well, Finland ranks number one.

Sara Rathner: I feel like I should say yay in Finnish, but my high school didn't offer that as a language class, so I'll just say it in English. Yay?

Sean Pyles: Yeah, mine didn't either. But of note, all of the top 20 happiest countries in this survey are industrialized nations, meaning they have fully functioning economies with a high average income per resident relative to other countries.

Sara Rathner: So more money equals more happiness?

Sean Pyles: Well …

Sara Rathner: That makes me happy, because I agree.

Sean Pyles: That is what we are exploring in the next segment.

Sara Rathner: Good. Because I feel like I have a better idea of what happiness is. A state of being content, applying radical acceptance of the circumstances of your life and choosing to make the best of it no matter what.

But self-help books and podcasts can feel pretty far removed from reality sometimes. No offense to anybody who's listening, who's written a self-help book. We live in a bubble, Sean, you and I.

Sean Pyles: But I also really wanted to hear about how in a boots-on-the-ground way happiness and money are connected in our day-to-day lives.

So I called up Morgan Housel. He's the author of “The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness," which has sold more than 2 million copies. He's a partner at the Collaborative Fund, a venture capital firm, and a former columnist for The Motley Fool and The Wall Street Journal. He also recently started his own podcast called "The Art of Spending Money." Morgan, welcome to Smart Money.

Morgan Housel: Thank you so much for having me.

Sean Pyles: Morgan, you've called money the greatest show on Earth because it's such a window into who we are, our character, our values, all wrapped up in dollars and cents. So, I want to ask you, is money also a window into our happiness or our level of contentment with our lives?

Morgan Housel: I think it definitely can be, because for so many people, money is more than a tool to buy stuff with. It is the scorecard for where they sit in the social hierarchy.

Now, when I phrase it like that, there's a lot of people that will wince or kind of step back, because for a lot of people it's not a great thing that is the role that it plays in their life, but it really can be. It's a scorecard of where you sit relative to your peers, for better or worse. I think for a lot of people, that is an unavoidable part of the role that money plays in their life. And that to me is just more of the window into how you feel about yourself and who you're trying to impress and why you're trying to impress those people and who you're trying to get to pay attention to you. That is the big part of money that I think goes overlooked.

Sean Pyles: It strikes me that people can put different amounts of value in that scorecard. Maybe someone who's not making a lot of money just simply doesn't care about that and they're happy in their own right.

Morgan Housel: Certainly. I mean, and that's part of the window as well, are the people who really don't care. And it goes in both directions. People who don't make much money but don't care that other people might not think highly of them in that element of their life. And there's people who make a lot of money and don't care about it either. I think that's a lot of it. And you also see people who are very, very wealthy, have more money than they could ever spend, who are still grinding away, working as hard as they can when they don't need the money.

Sean Pyles: Yeah, it'll never be enough for them.

Morgan Housel: Well, and there are some of those people who genuinely enjoy their work and that's why they're doing it. They're not doing it for the money, so to speak, but they actually like what they're doing. But there are definitely people for whom money becomes a genuine sense of addiction, and then the amount of money that they have is never enough. And just like the drug addict for whom it's never enough, they're just chasing the next high and the next high has to be greater than the last high just to keep them up to par. I think it's, in a very real sense, that's how some people's relationship with money is as well.

Sean Pyles: Well, let's talk a little bit about specifically spending and saving, and how that affects our feelings of well-being or financial satisfaction. Our culture is very focused on wealth. We look at the wealthiest people in this country and in the world, and we say, "You know what? They must be wildly happy. Look at all that they have."

But in your book, you point out that wealth is what you didn't buy. It's the car that you didn't buy that made you more wealthy, or the house or the shoes that you didn't buy made you more wealthy. And that can be a pretty counterintuitive approach to the relationship between wealth, possessions and happiness. Why do you think so many people assume that possessions equal wealth, equal happiness?

Morgan Housel: Well, I think so much of it is just a lack of context when you are trying to imagine what your life is going to be like if you had more money. So if I were to say, "Imagine your life if you had a mansion and a sports car and a private jet." By and large, if you were to dream about that, you imagine a life where everything is great and you have a mansion. The thing that's so easy to overlook is that people who live in mansions also get cancer. They also argue with their spouses. They also get sued by their neighbors. They bicker with their bosses. They have problems at work. And all of those things are such a massive force on your happiness or your unhappiness.

And so, I think the avoidance of that context is really important. And at a lower and more recognizable level, it's true, too. If an average ordinary person is to imagine how they're going to feel when they go on vacation, when they go to Hawaii and they're sitting on the beach, they imagine a pure bliss scenario where everything is so great. But what's so easy to overlook is that when you're laying on the beach in Hawaii, there's going to be sand blowing in your eyes and you forgot your sunscreen and your kids are yelling at you and you have heartburn from lunch.

And when you add in that context, maybe it's still great, it's still amazing. You're enjoying your vacation, but it's much less than what you imagined when everything else was perfect in that scenario.

Sean Pyles: It might be a little bit more "White Lotus" than people originally imagined their vacation would be.

Morgan Housel: Right.

Sean Pyles: I think people can assume that when they acquire these certain things, then their other problems that are bogging them down in day-to-day life, would just go away when you're right, things aren't going to simply disappear because you suddenly have more possessions or more wealth.

Morgan Housel: And one way to frame this too is, there's always the joke about, "Oh, first-world problem," but first-world problems are problems. It's not to say that their problems are worse than someone who's in abject poverty, of course. But first-world problems actually have a major impact on your well-being and your happiness. Even if they are easy to belittle for people who are in a lower socioeconomic class, they still have a massive impact.

Sean Pyles: We talked earlier in the show about Maslow's Hierarchy of Needs, and you've written about the hierarchy of wants. Can you tell us about that and how it relates to happiness?

Morgan Housel: Well, I think what what's really important here is the extent for people to move the goal post. And when you want something in life and you say, "Oh, as soon as I have X dollars, then everything's going to be great. Everything's going to feel wonderful." And then if your income of your net worth gets to whatever X is, you just kick the goal post down the road and you say, "Now I need 2X, 3X, 4X."

So that's a big part of people's happiness in terms of what they want out of life and how they are always chasing, just on the hamster wheel of expectations.

And for so many people, if you are fortunate enough to have a rising income or a rising net worth, but your expectations grow by even more. Let's say your income grows by 20%, but your expectations grow by 30% because now you are anchoring yourself to a different economic class and you are comparing yourself to people who are making much more than you, then there's so many scenarios where these people, their incomes in net worth go up, but they actually feel worse off.

There's no such thing as an abject level of wealth where, OK, once you have X dollars, now you're wealthy. Everything is just relative to other people. And when you move the goal post of who you are comparing yourself to, that spectrum of needs just has no ceiling. It can grow forever.

Sean Pyles: You continue to want more and more.

Morgan Housel: Absolutely.

Sean Pyles: I was reading a blog post you wrote where you said that our brains don't want nice cars or big homes, they want dopamine. Your brain doesn't really want the stuff itself, it just wants to, "engage in the process and anticipation of getting new stuff." Can you explain that a little bit more?

Morgan Housel: I really, I started thinking about this, I don't know, a year ago when I read Will Smith's biography. The actor Will Smith, not somebody most people would associate with of wisdom and philosophy, but he wrote this thing that I thought was so well-written. He said, "Becoming famous is the most amazing feeling in the world." He said, "Being famous is a mixed bag. And losing fame is pain like you've never experienced before."

And I thought that was really insightful. And I think what he's getting at is, what people really want out of life is not so much having a thing, it's the process of gaining a thing.

And I think it's really true for money, too, that the process of becoming wealthier feels better than having wealth. It's the change that you really want. And going from $1,000 to $10,000, that path upwards feels better than having $10,000 does.

And I think that's why people are perpetually on the hamster wheel because what they actually want is the change, the growth. But why it leads to a lot of frustration is because people have this natural tendency, I do this too, of, "Once I have X dollars, then all my needs will be met." But once they get there, they don't feel like that because they don't even know it, but what they actually want is the dopamine that they get from the change in the amount of money that they have.

Sean Pyles: Yeah. And when it comes to the topic of money and happiness, using money to maybe find more happiness, I think a lesson that I'm getting from this is that if you're going to deploy a bunch of cash to buy a nice car, make sure you're doing it for your own self-interest in some ways, for the reasons that would make you personally happy, but not for external validation.

Morgan Housel: I heard this framing fairly recently that I loved, which is someone who said, "A high-end Toyota is a much nicer car than an entry level BMW." And in that same regard, a suite at the Marriott is a nicer hotel room than a standard room at the Four Seasons. The reason why that is, is because the high-end Toyota is probably filled with gizmos and gadgets that make driving pleasant, whereas the entry level BMW is just bragging rights. That's all it gives you, is the ability to show people and tell people that you have a BMW. And so it's internal versus external.

Sean Pyles: You have a chapter in your book about the idea of freedom and how true wealth is the ability to control your own time. And in it you state that money's greatest intrinsic value is the ability to give yourself control over your time. Can you expand on that and talk about how that ties into happiness?

Morgan Housel: It's just this idea that most people's view of money, it's the knee-jerk reaction is, oh, the purpose of money is to buy you more stuff. It's obvious and of course that's a great use of it.

But there's this other thing that money can do, which is just give you control over your time and a sense of independence and autonomy, and just the ability to wake up every morning and say, "I can do whatever I want. I can change companies if I want to. I can move if I want to. I can take a two-month sabbatical if I need to."

You just have control over your time. Or if I were to be hit by a medical emergency or a car repair, it's not going to slow me down. I have the means to take care of those things.

Just that sense of control over the risks that everybody faces in their life is a huge, overlooked benefit and value of money. It allows you to use money as a tool to live a better life. One way to think about it is every dollar of savings that you own is a piece of your future that you control. On the flip side of that, every dollar of debt that you have is a piece of your future that somebody else controls. It's a piece of time in the future that you owe to somebody else rather than yourself.

Sean Pyles: I want to go back to the idea of possessions, owning things we were talking about, and I'm really interested in the idea of how we understand what having enough means for us. Because it can be really antithetical to how many of us live our lives in a very consumer-driven society. We always want to have a higher income, we want to have more in the bank, we want to have more devices around us. How do we define what our idea of enough is both emotionally and financially?

Morgan Housel: I think what's important is that the word “enough" is probably the wrong word and I've used that a million times. So, I'm criticizing myself here because when we say “enough,” it makes it sound like we're going to get to a level at which we don't desire anything more. And I think for the huge majority of people, that's not the case. I want more money. I want a higher net worth. I want a higher income. Of course, everybody does.

What I mean by enough, or at least the concept of enough is just a recognition that you understand that if your income grows slower than your expectations, if your expectations are outgrowing your income, you are always going to be miserable with your money. It's never going to feel like it's enough. You're never going to have any sense of satisfaction even if your money grows.

So, it's just this recognition that wealth is a two-part equation. One, you need to grow your income, grow your net worth, have great investments, of course. There's that part that we're all aware of. But then the second part of wealth is going out of your way with just as much effort to keep your expectations in check.

Sean Pyles: Well, this is something that we'll be exploring more in another episode of this series, but I'd like to get your take on how our personal histories play a role in our perceptions of money and happiness.

Someone who grew up in privilege is certainly going to have a much different outlook on that than someone who grew up in poverty. How can we work to understand that in our individual lives?

Morgan Housel: Well, I think it's just a recognition that nothing is more persuasive than what you've experienced firsthand. So even if people go out of the way to be empathetic and open-minded to the experiences of other people, everyone is kind of a prisoner to their own past, particularly when and where and to whom they were born, the generation, the country, and who your parents were. That has such a massive impact on who you become. And all three of those things are completely outside of your control, of course.

So when you realize that, that we are all just kind of innocently out of touch — I am out of touch, you are out of touch, innocently just because we don't understand or fully appreciate the views of the other 8 billion people on this planet — is a really important realization.

And one kind of practical takeaway from this is that most financial debates where people are arguing over how should you invest, how much money should you save? How should you spend your money, when should you retire? Most of those debates are not actually people debating. They're not actually disagreeing with each other. It's people with different risk tolerances, different time horizons, different social aspirations, talking over one another.

We want to think that there is one right answer to our money problems. And when you realize that people just have completely different views of how the world works and where the world is going next, you realize that there is not one right answer to these questions and problems.

Sean Pyles: That makes me think of another thing you brought up in your book, which was about how when you were born, the economic climate in which you grew up can have a huge determining factor on your mindset around money and happiness. And as a millennial, I look around and I see my peers and many of them flat out reject the idea that money has anything to do with your level of happiness. If anything, money's the reason that a lot of people are miserable because they can barely afford their lives, and they look at climate change and they think the stock market's going to melt down anyway. So why bother investing in the stock market? How do you think about that?

Morgan Housel: I think in many ways, to the extent that that view is predominant among younger people, 20s and 30s, I think that's probably consistent across generations. I'd be willing to bet that baby boomers had similar beliefs in the 1980s, and their parents had similar beliefs in the 1950s and ’60s. So in some ways, I think that's same as it ever was. In other ways, I also think that is a product of the generation.

I graduated college in 2008, so my opening — and my peers’ — our opening experience to the adult world was an economy that was in absolute shambles. And I think there's so much evidence that something like that will stick with you for the rest of your life. And this is so well documented for the generation that grew up during the Great Depression, and then as soon as that was over, they got thrust into World War II, that stuck with them forever.

The wounds of that can heal in the sense of the stock market recovers, the economy recovers, the wounds heal, but the scars last. That sticks around with you.

And I think the important thing is that most of us, I think, are blind to the fact that we have been scarred differently from other people. COVID was a very interesting case study in this because in 2020, during the big upheaval year, the economic impact was so bifurcated in the sense that if you owned a dry cleaner or a restaurant, your business literally went to zero. It was worse than the Great Depression. It was the most tragic catastrophe you could possibly imagine for those businesses.

If you worked in technology, it was literally the most prosperous, greatest period you had ever experienced, ever. It was the biggest technology boom that ever existed and your stocks exploded, your end-of-year bonus exploded. So, the experiences were so different depending on where you were in the economy, that some people in 2020 will be left with an economic scar that is worse than the Great Depression. And other people, their takeaway from 2020 was, “Sky's the limit. Take a risk. Go buy a vacation house.” That was their takeaway from 2020.

And so I think it's just leading to these experiences that are so extreme in either direction that it leads to a society where half of society does not understand and cannot comprehend and cannot empathize with the views of the other half, which is dangerous in so many regards.

Sean Pyles: Well, Morgan, I'd like to ask you now about your own journey around money and happiness. Do you feel like you've achieved levels of both that work for you? And how did, or would you know when you've reached that point?

Morgan Housel: I think my anxiety is lower than it was when I had less income. I think my contentment is higher now than it was when I had less income. I think there is a sense of relief knowing that my wife and kids will, in most scenarios, at least be OK. There are some benefits to it, but if you were to say, am I happier now than I was when I had less money? No, it's not happiness. It's other things, but it's not happiness. Happiness is a very fleeting emotion no matter who you are, how much money you have.

I always use the example of, if you hear the funniest joke in the world, you will laugh hysterically for like 30 seconds maybe, and then you're kind of over it. And if you hear that joke every day for the rest of your life, it's not funny anymore.

And I think happiness is the same. It can be extreme at times. You can go through periods of extreme happiness, but it's fleeting. It's not the kind of thing that sticks around. But I think reduced anxiety, contentment, those are more enduring emotions that you can get from having some level of financial success.

Sean Pyles: Well, Morgan Housel, thank you so much for talking with me.

Morgan Housel: This has been fun. Thanks so much.

Sean Pyles: So we've covered a lot of ground in this episode, but the search for financial happiness is just beginning, because even if you know where you want to go, you may not be equipped to get there. And sometimes to go forward, you first have to go backward.

Sara Rathner: Sean, you're sounding like one of those narrators of movie trailers like, "In a time where people aren't quite sure what makes them happy ..." How would you rephrase this in plain English?

Sean Pyles: OK, what I'm trying to say is that your personal history with money is messing you up. So, in the next episode, we're going to help you, our beloved, maybe traumatized listeners, work through your financial baggage.

Aja Evans: Give yourself so much grace. Just give yourself a minute to say, "This was hard." And nobody — and I don't care how much money you have, don't have, did have, don't have, whatever, wherever you are on the spectrum of wealth — everybody has experienced trauma in some way, shape or form.

Sara Rathner: All right, well let the healing begin.

Sean Pyles: Yes. But for now, that is all we have for this episode. Do you have a money question of your own or thoughts around money and happiness? Turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected].

Also visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us wherever you're getting this podcast.

This episode was produced by Tess Vigeland and me, Sean Pyles. We had editing help from Sara Rathner, Kaely Monahan mixed our audio, and a big thank you to the folks on the NerdWallet copy desk for all their help.

Sara Rathner: And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Sean Pyles: And with that said, until next time, turn to the Nerds.