Financial Security: Crucial to Life Satisfaction

by Laura Rowley

When it comes to money and happiness, a feeling of financial security is just as important as income, at least for women. That's the finding of a new study by Talya Miron-Shatz, a research scholar at Princeton University's Center for Health and Well-Being.

Miron-Shatz recruited nearly 1,000 women of various ages and incomes to participate in two studies. Researchers asked a series of questions about major life topics, including relationships, work, finances, and overall well-being. Participants in the second study were asked to think and write about "the future" in an open-ended way.

Not surprisingly, women with higher incomes -- those in the 75th percentile and above -- reported more life satisfaction than those in the bottom 25th percentile. But feeling financially secure had the same effect: "When you trade off income for [secure] feelings, it raises life satisfaction to the same degree that a rise in income does," Miron-Shatz says.

Financial Concerns Ding Happiness

When asked about the future, 40 percent of respondents mentioned financial concerns -- retirement, college tuition, making ends meet, etc. These participants reported lower life satisfaction than women who did not raise such concerns.

But remarkably, the study found that the sense of security someone enjoys -- or the sense of foreboding she feels -- has nothing to do with earnings, the complexity of finances, or even being in the red. Household income, homeownership status, age, and credit card debt did not predict whether or not a participant would include financial matters in her image of the future. The study was published in the February 25 issue of ‘Judgment and Decision Making'.

"I think the whole notion of security is becoming more prominent," says Miron-Shatz. "Something is happening in America that hasn't happened since the Great Depression -- the notion that whatever it is I have may be insufficient, or is dwindling rather than increasing, and that is leading to a huge amount of anxiety."

It Hurts to Lose What You Had

Clearly that anxiety can be just as potent for men. Miron-Shatz tells the story of a psychologist colleague whose patient was hospitalized with suicidal thoughts after losing half of his net worth -- although he remained quite wealthy after the loss.

"He was not suicidal because he couldn't go to the grocery store," Miron-Shatz notes. "It's that we are all accustomed to our way of life -- whether it's a motor home or a McMansion -- and you don't want it taken away from you. The prospect of losing that can be psychologically damaging. People value security as much as they value their actual assets."

Miron-Shatz works with Princeton's Daniel Kahneman, a psychologist who won the Nobel Prize in economics for his research in behavioral finance and hedonic psychology. Kahneman and several other researchers created the Day Reconstruction Method (DRM), a tool to measure people's daily quality of life by asking them to record their activities from the previous day in short diary form, as well as their feelings about the events.

What's Making You Happy?

Miron-Shatz was intrigued by the layer of thought and emotion not captured by the DRM. "You may be looking forward to a good friend's visit, and she's not coming until next week," she explains. "You're happy about it; but when you measure activities, you can't capture that this is what's making you happy, and not what you're doing. I wanted to develop a study to capture this layer of thoughts throughout the day."

Among those with money anxieties, 45 percent worried about finances in a generic way. More than a third focused on their financial well-being in retirement; as one respondent wrote, "I think about where I will spend my retirement years and will I have enough health and money to live a decent life." Some 13 percent worried about job security and salaries; 11 percent were concerned about buying or renovating a home; and 10 percent mentioned supporting children and college tuition.

Participants "were worried about very realistic, down-to-earth things, not dreams of grandeur and trips to the Bahamas," notes Miron-Shatz. Just 2 percent mentioned the cost of healthcare or health insurance (and only one respondent referred to the economic status of the country).

Feeling More Secure

So how can people who fret about money feel more secure?

1. If the problem is real -- too much debt or lack of savings -- psychologists recommend "task-oriented coping." Start by brainstorming a menu of strategies to achieve financial goals. Time-management expert and author Doug Sundheim has clients create a long list of everything they're interested in having, putting them in categories such as work, family, health, etc.

Next, clients circle the goals they find most exciting, and write the words, "I could...." at the top of a page. Then they brainstorm 10 to 20 ways to pursue the objective, and begin testing different methods to achieve it. "One of the biggest reasons people never get out of the starting block is they're afraid to experiment with ways to achieve their goals," Sundheim says.

2. For people such as the suicidal wealthy man, lack of money itself is not the problem, so psychologists recommend "emotion-focused coping." The idea is to communicate one's feelings, with the goal of changing perspective on the stressful issue. Seeking social support helps. In her book 'The How of Happiness', psychologist Sonja Lyubomirsky reports on a study that tracked down men and women whose spouses had died suddenly a year earlier.

"Perhaps not surprisingly, they found that the sudden death of spouses was related to an abrupt decline in their physical health," she writes. "However, those widows and widowers who had confided to others close to them had fewer health problems and were less likely to ruminate about their situation."

3. Try "avoidance coping," which is something I turn to when reading stories about the potential impact of New Jersey's budget woes on my property taxes -- or other financial issues that are largely out of my personal control. Simply put, create a diversion: I take the dog for a walk, tackle a household chore, see what friends on Facebook are up to, or call one of my sisters. Research has found that volunteering is a surefire mood-booster, and for money-worriers, spending a morning at a food pantry might provide useful perspective.

4. Manage your aspirations. Money worries can come from falling short of some arbitrary ideal. If you think your children will not do well in life unless they graduate from Harvard, and paying that kind of tuition is impossible, it's time to reframe your reality. And don't compare yourself to people who can afford Harvard; there are many conduits to misery in life, but this one is a bullet-train.

Finally, don't ruminate on losses. "Focusing on the past is the worst thing to do -- you really have to move on," says Miron-Shatz. Her own family experience is a case in point; in the 1940s her mother's family fled Tunisia, which was occupied by the Nazis during World War II, leaving their hard-earned wealth behind. "She married my dad, went to nursing school, and lives in a small apartment," says Miron-Shatz. "She never looked back. That's the best thing to do -- although it's not easy."


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