Solving for Happiness

The first rule of a happy life is low expectations. If you have unrealistic expectations you’re going to be miserable your whole life. You want to have reasonable expectations and take life’s results, good and bad, as they happen with a certain amount of stoicism.

Charlie Munger said those words two years ago, and they touch on a question that is foundationally important to anyone who works in financial services – is happiness objective or subjective?

It’s tempting to believe that happiness is objective. That, just by virtue of having or doing certain things, you can achieve a permanent state of contentment and joy.

When U.S. adults were asked in a recent survey whether money could buy happiness, 59% said yes. When asked how much money they would need to make per year in order to be happy, the average response was $284,000. Millennials – my generation – were the most convinced of all the generational cohorts that money could buy happiness (72%) and placed the highest annual salary requirement on happiness (a staggering $525,000 per year).

It’s tempting to believe … but it’s not true.

Charlie Munger, who had a net worth of $2.6 billion at the time of his death, repeatedly told us over the years that the secret to a happy life has nothing to do with how much money you make. 

Psychologists and behavioral scientists, who use more official-sounding terms for happiness, like subjective well-being, agree, pointing out that happiness is more strongly correlated with personality traits than with external conditions.

Happiness is subjective, not objective.

And as Charlie Munger observed, our subjective feelings of happiness are largely a function of our expectations. 

This brings us to the problem – our expectations are easily influenced.

Cucumbers vs. Grapes

Humans, like all social animals, set our expectations by observing how our fellow humans behave, what they have, and how well they seem to be doing.

These external social cues are a useful heuristic, but they can be manipulated.

Here’s a very famous study on fairness in which a Dutch primatologist very effectively manipulates the expectations of capuchin monkeys:

You’re perfectly happy being paid in cucumbers … until you find out that your friend, who is no smarter or more productive than you are, is being paid for the exact same work in grapes.

IN GRAPES!

Once you find that out, you have no choice but to be pissed off. No matter how satisfied you were with cucumbers then, it’s impossible to be satisfied with cucumbers now.

Interestingly, humans living in the U.S. during the second half of the 20th century went through a similar fairness experiment.

As Morgan Housel relates in his brilliant new book Same as Ever, the 1950s are generally considered to be the golden age of middle-class prosperity in America:

Ask Americans when the country was at its greatest and the 1950s is usually near the top. Compared to today? Different worlds, no comparison. The overwhelming feeling is: It was better then. 

This is very weird because, as Housel points out in his book, by any objective standard, Americans’ lives are vastly better today than they were in the 1950s. Median family income and hourly wages, adjusted for inflation, are much higher. The homeownership rate back then was 12% lower than it is today. The average home was a third smaller than today’s, despite having more occupants. The cost of food made up 29% of the average household’s budget, compared to just 13% today.

So, what accounts for this persistent (and objectively incorrect) feeling that things were better in the 1950s than they have been at any time since then?

As Housel explains, coming out of World War II:

The variance of income between classes that existed before the war shrank dramatically. A few years after the war, historian Frederick Lewis Allen noted that the biggest economic gains in percentage terms had gone to the lowest-earning members of society, considerably closing the gap between rich and poor. 

It created an era when it was easy to keep your expectations in check because few people in your social circle lived dramatically better than you did.

Many (but not all) Americans could look around and find that not only were they living comfortable lives, they were living lives that were just about as comfortable as those around them whom they compared themselves to.

It’s the one thing that distinguishes the 1950s from other eras.     

Most people were getting cucumbers, and seeing everyone they knew getting cucumbers as well.

So, what changed?

Two big things.

First, more people started getting grapes. Here’s Housel again:

By the early 1980s, the postwar togetherness that dominated the 1950s and ’60s gave way to more stratified growth, where many people plodded along while a few grew exponentially wealthier. The glorious lifestyles of the few inflated the aspirations of the many.  

Second, we invented social media, which democratized the ability to have your expectations dramatically reset by the experiences of others. This started with Instagram, which bombarded us with the glossiest and most high-status moments of friends’ lives (picture a capuchin monkey taking a selfie of itself eating a grape while, outside the frame of the picture, it is sitting in a pile of cucumbers). However, it has been perfected by TikTok, which removed the constraint of seeing only what your friends were sharing and replaced it with an algorithmically-generated feed of content from all users, designed to optimize engagement (picture a capuchin monkey angrily swiping through TikTok and being served up video clips of jaguars, sloths, and crocodiles eating all kinds of delicious snacks).

This algorithmically generated FOMO is rewiring people’s brains, particularly Millennials and Gen Zers, who, surveys tell us, are much more likely to buy luxury goods and to buy them at earlier ages than their older counterparts. Here’s how one Gen Zer describes the influence of TikTok on her savings goals:

Sarah notes the surging luxurytok content – which has nearly 253 million views on TikTok videos from designer brand unboxing to extravagant first-class holidays – as one of the key drivers for her outlook. 

“It’s so easy to end up with luxurytok videos on your For You page’” explains Sarah. “There’s always a new ‘it bag’ and I’ve made it my goal to start saving for a few designer pieces to take on my trips and pass down to future children.”    

Why Banks and Fintech Companies Should Care About This

You may be wondering – Why is any of this a problem that banks and fintech companies should concern themselves with?

After all, Sarah, the Gen Zer, should be allowed to make her own choices. We provide the savings account, you think. It’s not our job to tell her what to save up for.

The problem with this line of thinking is two-fold.

First, banks and fintech companies haven’t exactly been neutral enablers when it comes to the ‘consumerism vs. financial health’ war that their customers have all been waging in their own heads. 

Indeed, when you look at large credit card issuers teaming up with The Points Guy to design mouthwatering rewards programs or the large BNPL providers transforming into full-on advertising networks or investment apps prioritizing user engagement over prudent portfolio building, it’s easy to make the argument that many financial services companies have become the devil on their customers’ shoulders.

Second, and more importantly, your customers want your help in solving this problem!

A few years ago, researchers asked U.S. adults an intentionally broad and open-ended question –  what is crucial to the future of your financial success?

The second most popular response was “developing a healthier relationship between money and happiness.”

When asked why this was so important, people consistently cited the negative feelings that resulted from comparing themselves, financially, to others. Indeed, 58% of Americans reported having felt disappointed with themselves or embarrassed when they saw someone else’s financial status or lifestyle.

So, to answer the question – is this a problem that banks and fintech companies should concern themselves with? 

Yes, yes it is.

To paraphrase a famous poem, send not for whom the unhappy, status-obsessed Millennials and Gen Zers toll, they toll for thee.

How Can Banks and Fintech Companies Help?

I’ll be blunt – I have no idea.

This is a very difficult problem to address. 

It’s human nature to compare ourselves to others and to let those comparisons drive us into financially unhealthy, misery-inducing quests for status.

That’s not the fault of financial services companies, nor is it something that financial services companies can cure. 

That said, I do believe that instead of leaning in and encouraging people’s worst impulses in this respect, banks and fintech companies can and should develop solutions to help people modulate their expectations, reduce their status anxiety, and live happier, financially healthier lives.

Again, I don’t know exactly what those solutions should look like, but here are a couple of questions that might help point us in a productive direction:

• How can we help people become more self-aware in regard to how money makes them feel? As I’ve written about many times in the past, the emphasis of most personal financial management apps (budgeting and transaction categorization) isn’t well-aligned with the most urgent personal financial needs that people have. Can we have more PFM apps designed to encourage reflection and positive self-talk? Can we make financial coaching and therapy more easily accessible? 
• How can we make financial health sexy? The closest thing we have to a mechanism for conferring bragging rights in this area is the credit score, which isn’t ideal. Can we create more standardized measures of financial health? Give people more things to subtly work into the conversation on a first date.  
• How can we help people share more of their true selves with one another? It would help keep our expectations in check if we stopped just showing other people the best parts of our lives and instead showed a fuller, more honest depiction. There are a few small communities where this happens today (r/povertyfinance on Reddit, Go Fund Yourself on Instagram, etc.), but what can we do to amplify them? What can we learn from less individualistic financial community structures in other cultures, such as ROSCAs?
• How can we encourage and enable extreme frugality? Another challenge posed by human nature is how quickly people can become accustomed to luxuries. The first time you fly first class, it feels amazing. The 1,000 time feels routine or even annoying. Perhaps one way to keep our expectations in check is to just be way more frugal? Ramp made penny-pinching cool for corporations. Can we build a consumer equivalent?   
• How can we help people time travel? Research has repeatedly shown that people derive more happiness from anticipating a future purchase than they do from the actual purchase itself. Can we design more engaging and immersive experiences to help people perform this ‘mental time travel’ and reap more satisfaction from purchases they haven’t yet made?