Tag Archives: Money

Basic income: utopian dream or the road to happiness?

Few ideas are more exciting for a happiness economist than a basic income. It sound like utopia: free money for everybody. Could it actually work?

The Swiss basic income referendum

The Swiss electorate had the chance to have its say on Sunday. And the answer is a resounding ‘no’: 77% of the population opposed the idea of a basic income. In the design for the Swiss referendum, the basic income would be unconditional: nothing would be demanded from citizens in exchange for the transfer of money. The level of the basic income would have to be set by law, according to the initiators, but they argued that 2,500 CHF for adults (around 2300 Euro) and 625 CHF for children would be an appropriate figure. That sounds like a lot, but remember that Switzerland is rich: a salary for a supermarket worker is around 3,000 CHF.

Proponents of the basic income argued that it would “enable the population to live a dignified life and to participate in public life”, providing people the freedom to live their life as they want. They also argued that basic income would be needed in an age where robotisation and digitisation would mean that many current jobs won’t exist anymore in ten years. The basic income has also been portrayed as an easier way to provide social security in a modernised and more efficient welfare state.

Opponents argued – not surprisingly – that the math behind the idea doesn’t add up. According to estimates, the Swiss state would spend around 200 bn CHF, or 35% of GDP, to pay its citizens such a basic income. It would require around 25 bn CHF extra in taxation revenue (which may have pros, as we saw last week) or expenditure cuts to finance the scheme. Beyond that, the idea would risk to destabilise the entire economy, as people wouldn’t work as much as before. In addition, there were moral arguments on the national laziness that would ensue.

Switzerland won’t have a basic income. But don’t believe proponents are demotivated by the loss. Instead, they see the fact that over 20% supported such a radical income as a sign that the real public debate is only about to start.

Performance by the initiators of the referendum, who dumped 8 million coins at a square when they reached the necessary number of 125,000 signatures to call the referendum. Source: Wikipedia,

Performance by the initiators of the referendum, who dumped 8 million coins at a square when they reached the necessary number of 125,000 signatures to call the referendum. Source: Wikipedia,

A Finnish experiment in simplification

While I am sympathetic to the idea, I do have my doubts on the math. It might be worth studying the consequences of a basic income for a smaller group, before implementing it for everybody. That is exactly what will be done in Finland: in 2017, it will provide a basic income to 10,000 lucky sampled citizens. Participation is mandatory. Importantly, the Finnish experiment will also simplify the social security system as part of the exercise.

Some proponents support basic income as a way to rationalise the various categories of social expenditure. Finland has around 100 different categories of social security spending, and during the experiment 50 of these would be replace by one single basic income. Also in other countries, citizens are subsidised for several hundreds of euro per month, for instance via services accessed for free. Couldn’t all this be simplified into one basic income? Or would it still be impossible to fund it? The Finnish experiment will be closely watched.

Free money, a way to happiness

Even if we may be unable to introduce free money for all, there are a couple of lucky people who actually received a basic income. The German foundation Mein Grundeinkommen crowd-funds a basic income: every time when they’ve gathered 12,000 Euro, one winner gets a basic income for one year. And according to its director Michael Bohmeyer (who receives his own monthly 1000 Euro basic income via the proceeds of shares in the company he left), the results are amazing.

Speaking at a panel discussion in Brussels, Bohmeyer told how he feels a lot more free, secure and relaxed with his basic income. When receiving the income, he realised how much people are in running mode every day. Work and the need to have a salary to provide for our life results in a lot of stress.

In his experience, that doesn’t mean that nobody would work anymore if they receive a basic income. Of the around 40 people who won a basic income through the lottery, all but one continued to work. And maybe it’s an issue of low trust in others: when asked if others would still work when they have a basic income, around 80% said no. When the question was if they themselves would still work, around 90% said they’d continue to work, says Bohmeyer (video in German).

Basic income may not only about simplified social security, but also about a better work-life balance and higher happiness. Let’s hope that the Finnish experiences shows that it is actually possible to get the math right.

For another passionate case on basic income, see the talk of Rutger Bregman, a Dutch journalist and basic income enthousiast. He wrote a book on the basic income under the title ‘Utopia for Realists‘.

Less is more: a minimalist life

I’ve spent some time the last month in packing, storing, and reordering, as I moved recently. It made me realise how much stuff I own: books I’ve read a long time ago, clothes I don’t wear, postcards and pictures reminding me of ancient times in my own life, scientific articles to prepare my thesis while in university, all kind of random small objects… so much stuff!

When I was in this reflective mood, I met a guy who has a lot more minimalist approach to life than I did. I’ll call him Alex, because that is his name. Alex lived in various countries throughout his life, and ended up in Brussels around a year ago. He rents a room here, and all his own possessions fit in two suitcases. (Funnily, he admitted he owns seven pairs of underwear, so he needs to do laundry at leat once per week, but is thinking of buying more of them).

Alex doesn’t necessarily define himself a minimalist, but there any people who do. For some, it means picking a certain lifestyle which is less about stuff and more about experiences. For others, there clearly is a sport in it to count and reduce the number of items they own, to 288 items only, to 100, or even 50 or below. Some go by with less than seven pieces of underwear. To be honest, most of cheat a little: they may count three pieces of underwear as one item!

Does less stuff equal more happiness?

Have the minimalists found a pathway to happiness in a time when storage centers are booming business? The science on stuff and happiness is not that clear. According to this post, minimalism is a tool that can help people reassess their priorities. For instance, when the focus shifts away from owning stuff and towards spending money on experiences or social relations, that is something that contributes to happiness.

From research on the relation between consumption, money, and happiness, we know for a long time time that there are ‘hedonic adaptation’ and a ‘hedonic treadmill’ effects. Once we acquire something new, we quickly get used to it, and need to buy other things again to retain this feeling. Hence, material goods do not create lasting happiness, and we up storing boxes and boxes of stuff outside our house.

To the contrary, spending money on special experiences works, says professor Michael Norton. You might not remember anything anymore about the experience of buying a piece of clothing five years ago. But I bet you remember a special outing you did, like going skydiving or a hike with friends.

Storage centers, a booming business.

Storage centers, a booming business.

It’s decluttering and ordering, not minimising, that matters

One of the great benefits of minimalism, wrote one of the bloggers I read, is the following: you never have to look search for anything, and cleaning your apartment takes only a couple of minutes. But all good virtues come in moderation. A couple of more extreme people like Alex aside, probably most of us are better off with just a bit less and better organised stuff, not a minimal amount of stuff.

Looking at blogs and book titles, there is an enormous hype around ‘decluttering’. This term simply means clearing ‘clutter’ out of our houses and our lives, by throwing (or giving) away clothes, books, and household items you don’t need. When all your stuff is in your life and your house for a reason – be it because of a practical use, or sentimental value – you’re in a situation where less is more.

Am I tempted to throw away all my books and become a minimalist? Absolutely not. I have selected and re-selected my collection, and I cherish those books I’ve kept. I like to believe that everything I own is there for a reason.

These chaps may disagree. But to me, it’s not the number of items in your life that counts, but the life in your items.

 

A $70k minimum wage: a real-life experiment in happiness economics

Money: it proves to be the central topic for happiness researchers worldwide. Only last week I wondered how money affects me. This week, coverage from various international newspapers on a great new real-life experiment left me no choice but to discuss it again.

A $70k minimum wage, based on scientific advice

Dan Price, CEO of the Seatlle-based Gravity Payments decided to raise the salary of all his staff to a minimum of $70,000. He made his decision after reading an academic article by Daniel Kahnemann and Angus Deaton.  Analysing data on salaries and well-being within a Gallup poll under 450,000 US citizens, Kahnemann and Angus found that well-being does not raise anymore after a salary of around $75,000. As they acknowledge their study does not settle the eternal question whether money buys happiness. Indeed, an enormous number of studies has been dedicated to the topic, and findings are inconclusive. For instance, a UK study based on figures for multiple countries from the World Value Survey I cited in another post reported a figure already of $30,000 as a cut-off point.

How do Kahnemann and Deaton come to the figure of $75,000? Whilst the article is very readworthy, let me give you a quick overview. They distill four indicators out of the Gallup data. Firstly, ‘positive affect’ measures how often people report happiness, enjoyment, and smiling and laughter; people were asked whether they experienced these (and other) emotions the day before their interview. Secondly, ‘not blue’ uses a similar technique, but regards the number of people who did not experience sadness and worry. Thirdly, ‘stress-free’ measures one question: whether the interview person experienced stress the day before. Finally, Kahnemann and Deaton extracted income data from the survey.

The table summarises the findings: all three factors increase when income increases. The factor ‘not blue’ shows the largest difference, indicating that sadness and worry are more strongly associated with lower incomes. But what the three characteristics have in common is that all of them at a certain point – at around $75,000 – increase only very marginally or even degree. An ideal point, possibly.

F1.medium

The graph comes from the publication (Kahnemann and Deaton 2010)

 

A real-life experiment 

Price’s decision was not only a great and happy surprise for the half of his staff who earned less than $70,000, but also is a very interesting social experiment. In this almost communist version of capitalism, the impact on the firm is likely to be massive. In the New York Times article, people with a current salary in the $40,000s tell being concerned about rent increases and health bills. An increase should alleviate such worries, making an overall contribution to happiness.

One of the most curious about the impact on the internal dynamics and job satisfaction. According to the article, the firm has 120 staff, with an average salary of $48.000. 70 staff see their salary increase; 30 people will have their salaries double. That also means that the differences between staff with different seniority and competences disappears.

How will this impact motivation? There can be two possible directions. On the one hand, people may be less motivated to work harder. They are less incentivised to do so as they already have the guarantee of a raise. And a cynic could argue that there might be some frustration amongst those employees who are in the top bracket.

On the other hand, the effects could be positive. Giving this raise is likely to increase overall well-being, and originates from the work environment, it would be expected to result in higher levels of happiness at work. One of the main effects, I would expect, is that the unconditional raise could increase the trust of Price’s employees, which would be hoped to be repaid via a commitment to stay at the firm and perform well in exchange for this reward. That could lead, for instance, to better staff retention and strong self-motivation.

Happiness at work is associated with a range of positive outcomes at firm level, going from lower absenteeism, less sick leave, higher productivity, and overall job performance. Beyond that, higher and more equal wages of course of societal benefits, as the new economic foundations note in a blog post.

Once the shock of the raise is over, I hope that Price is monitoring the development of happiness at work over a longer time period. It’s a great case study and it will be wonderful to see what the real effects are. It’s not only useful for all companies in the US who may want to follow the example to increase equality on the work floor and happiness at work, but also for companies outside. Maybe then one day we can establish whether there really is an optimal income for happiness.

Money – making sense of the root of all evil

Money, it’s a crime 
Share it fairly but don’t take a slice of my pie
Money, so they say 
Is the root of all evil today
But if you ask for a raise it’s no surprise
That they’re giving none away

Pink Floyd, Money

For a happiness blogger, money is an obvious topic to cover. In the last year and a half, I’ve written a series of posts on money and happiness.

But how does money affect me?

I hadn’t thought of that so much, until I took a workshop with Sydney Schreiber last month. Sydney’s workshop is titled Making sense of your relationship with money (see intro video here). And indeed, participating helped me reflect on how I use money and what it does for me.

This reflection started already before the workshop: as homework I had to calculate my net worth, or the value of all my (material) possessions, and my annual income. This is not an easy thing to do. When it comes to a collection of books or ties, for instance, do I count the €15 or €20 I bought a book for? Should I consider how much I could earn by selling your ties? And how does it work with gifts when I don’t know their price?

Money has a million different meanings

moneyFrom an association exercise with the group, we could observe that money means something different for everybody. Terms that were mentioned when Sydney asked us to associate went in all directions: from ‘hedonism’, ‘root of all evil’ and ‘pollution, to ‘love’ and ‘pleasure’, and from ‘happiness’ to ‘unhappiness’. For Sydney, none of these associations is right or wrong: he sees money as a blank screen, that represents whatever we project on it. It’s a valid point: money doesn’t have any meaning per se. Fundamentally, it’s merely a piece of paper that gets its meaning because we accept in exchange of books or ties.

How we see oftentimes is influenced by our background. Are we raised with American, European or Asian values? Do we value material possessions, personal creativity, or social harmony most? Do we come from a business-like or a spiritual family?

Another interesting exercise we did was writing our biography with money: when were we first aware that money existed? Had it ever created great possibilities or difficulties? An extract of the one I wrote:

I don’t have many memories about money in my childhood. I probably received around 2 guilders (€0.90) per month when I was around 6 or 7, and 5 guilders (€2.25) when I was nine. Most if not all went to my savings.

I did spend some money on ice cream or pinball machines during holidays. My family usually didn’t spend a lot of money. Saving is important in the Netherlands and we don’t like to waste money.

 

For something that influences our lives so much, we think surprisingly little about money. One of the takeaways I got is how ambivalent money is to people. It can have a positive as well as a negative influence one. And whilst this seems quite obvious intuitively, psychological research even has been able to prove the effect.

Psychological research shows: money impacts enjoyment

A study from the University of Liège, described by the Scientific American, laid out evidence that money can influence how much we enjoy certain experiences. In two experiments, the researchers tested how participants would enjoy experiences. Half of the participants were primed as they were shown a picture of money; the other half did not. Then, they were asked to do a psychological test. The results showed that the first group scored lower on enjoyment of pleasant experiences than the second.

In a second test, the same results were replicated in a different fashion. With again half of the participants given a stimulus of money (and the other group none), two groups were asked to eat a piece of chocolate. On average, the people who had seen the image of money munched away their piece of chocolate in 13 seconds less: 32 seconds for those primed with money; and 45 for those who didn’t have their experience spoiled by this exposure.

All this makes clear that money can have quite a significant influence on our experiences. Sometimes that may be problematic, other moments it may not. But in either case, it should be within our control. For that, it’s useful to have insight in your relationship to money.

For more about Sydney’s workshop, see http://freetobe.be/

The morality of the market: can everything be bought?

Can everything be bought?

Last week I wrote about ‘Happy Money’, written by Harvard professor Michael Norton, and concluded with him that happiness can be ‘bought’ when money is spent wisely.

Today, I want to face another question: should it be possible to buy everything with money, even if it is unjust, unfair or immoral? Another Harvard professor, philosopher Michael Sandel, has written a book pondering all facets of this question.

I bought Sandel’s book ‘What Money Can’t Buy: The Moral Limits of Markets’ in February, shortly before travelling to my course on happiness economics at Schumacher College. His prose made me realise how evasively money has entered all domains of life and how absurd some transactions are.

Allow an ad on your forehead: $777

In his book, he dives into various weird, and sometimes even out rightly wrong, areas of capitalism:

  • Lobbyist pay homeless people to wait in line for Congress hearings in Washington  (quite sure this does not happen in Brussels): $10-20 per hour.
  • The pay a six-year-old school child in Dallas gets for reading a book: $2.
  • Compensation for offering your forehead as an advertising space for Air New Zealand: $777.
  • If you are a woman addicted to drugs, you can ‘earn’ money by agreeing to sterilisation: $300.
  • Markets crowding out social values: priceless.

Some of these are clear excesses of capitalism, whilst others are a little more subtle. In a way, money and power have always mattered. Wealthy businessmen are sponsoring the presidential campaign Obama in the hope to get rewarded with an ambassador post or a certain policy. Or they might make a donation to an Ivy League university in the hope their children will be taken on. Like it or not, but I fear it is how the world works and worked for centuries. But even if that is reality, it does go against the principle of equality we all sympathise with – unless we risk losing out ourselves.

Rent-A-Friend: $10 per hour

Still, we know that these things feel a lot better and authentic when they are deserved. In 2000, a Dutch movie ‘Rent A Friend’ came out, about an an agency that rented out ‘friends’ to people that felt lonely. Despite the feeling that friendship can’t be bought, the idea has been taken up in real life: www.rentafriend.com boasts being able to offer over 500,000 ‘friends’, starting at $10 a hour, though many will waive their fee if you take them to a concert or sports event – very generous!

Markets in life and death 

Markets should have limits, argues Sandel. And it should be us as people, citizens, consumers to pose them. One of the most fascinating chapters talks about the markets of life and death. He documents many examples where life and death are sold and bought. For instance, he speaks of ‘celebrity death pools’, where people place bets on who is most likely to die.

Death list is one of these sites (though it appears there is no money involved). ‘Hopes’ are her on a death for Prince Philip or Stephen Hawking; Fidel Castro is on for the 11th year. Castro also makes it to a list at ranker.com. Here, voters have a good hand; six names out of the top ten have died this year.

But Sandel cites even crazier and more repulsive practices: employers  take life insurances on their employees, and then cash the payout if they die prematurely. Or people trade on the terrorism futures market, which rewards people who rightly guess when and where terrorists strikes, and how many people are killed.

Bring morals back to the market

From a capitalists perspective, there is nothing wrong with this. It is a market, and people are only accountable to themselves for their transactions. But as Sandel indicates, there are too many absurd, immoral, and sometimes plain wrong things that are bought and sold. And all this should stop.

Still, I don’t think laws and regulation are not the best ways to put limits to these markets. It is a moral issue, and it is our responsibility as citizens to reflect on our decisions and follow or moral compass. The limits of markets are set by consumers and nobody else. In recent decades, we have allowed ourselves to go way too far. It’s time to bring morals back to the market.

Everything can be bought. But markets crowding out social values: priceless.

 

Little surprise: also Sandel has given a TED talk about his work.

How will you buy your happiness

Money can’t buy happiness, or so goes the common wisdom.

money can't buy happiness

Some say that despite this, it is more comfortable crying in a Porsche than on a bicycle. Others say that even if money can’t buy you happiness, it can buy a jet ski, which is pretty close.

money happiness jetski

TEDx speaker Michael Norton offers his own take on the matter. His research illustrates that if you think that money can’t buy happiness, you’re just not spending it right.

Norton is an associate professor in Business Administration at Harvard University and the co-author of ‘Happy Money: The Science of Smarter Spending.’ Of their five principles on happy money, I would like to focus on two: buying experiences and investing in others.

Buying experiences
One of the best ways to get the most bang for your happiness buck is to spend money on experiences. It’s not material goods, but rather, the special moments in our lives that we cherish. No matter what we buy, we adapt to material goods quickly. A new pair of shoes or amazing coffee machine will only retain its magic for a short period of time. Memories of special moments spent with fun people, however, don’t fade. Therefore, Norton’s advice is to go see a friend that you haven’t seen for a long time when the opportunity arises, and accept a monetary loss to book that great trip to Latin America. The fulfillment you’ll get will be a lot higher than for any luxury good purchase.

Spending money on others
A second way to ‘invest’ money in happiness is to spend it on others. In Norton’s talk, he explains the experiment that lead to this conclusion. And to test it, they gave money away. The setup of the experiment was simple: they gave Canadian students small amounts of money, around $5 or $20. Half were instructed to use it to buy something for themselves; the other half were asked to get a little gift for someone else. At the end of the day, the students answered a short survey about their happiness.

The conclusions were clear: for the students who bought something for themselves – say, a coffee or makeup – there were no major differences in happiness. But those who had bought something for others reported higher happiness levels. Further studies confirmed that the effect does not apply only to this particular demographic (Canadian students), but that the patterns were strikingly similar in Uganda and nearly everywhere else.

How will you buy your happiness?

An earlier version of this post was published on the blog of TEDxAmsterdam, as part of my series ‘TED & Happiness’, exploring some of the fifty plus talks related to happiness in TED’s library. Earlier posts covered flow (Mihaly Csikszentmihalyi) and ‘happiness advantage‘ (Shawn Achor).

Thanks to Tori Egherman for editing and for the illustration below.

SPENDING-ON

The lottery of happiness

Who hasn’t dreamt of it? Spending a couple of euros on a lottery ticket to win an amazing prize. Probably you, like everybody else, have fantasised what you’d do with a million euros. Maybe you would buy a nice villa, buy a Porsche and a Bentley, or make a big trip to Brazil. Or donate some money to charity, of course.

Most of us are aware that the chance of winning a lottery is minimal. That’s why lotteries are also called a tax on stupidity. But still, speak to the villagers of Leganes who won  a combined €360 million in ‘El Gordo’, the fat one, Spain’s annual Christmas lottery. Or to the inhabitants in Vrouwenpolder, a village of barely 1000 people who won €42,9 million in a Dutch lottery just before Christmas.

Some ecards lottery

Source: www.someecards.com

But let’s ask another question: would winning the lottery make you happier? Large sums of money definitely make your life easier. But that big house and Porsche don’t make you happy. There are plenty of newspaper stories around of lottery winners who get completely crazy and change their lives for the worse. Take Keith Gough, who started with the purchase of a new home and a box in the stadium of his favourite football team after a 9 million pounds win in 2005. But then he started drinking, ended up losing his wife, and met a bandit in rehab tricking him into ‘deals’ that lost him his wealth. The story ends in 2010, when Gough dies of a heart attack caused by stress and drinking. And he’s just one – Time even has made a full gallery of them.

This is not just anecdotal evidence. Scientific studies confirm that large sums of money generally do not suddenly change our lives for the better. A seminal study, undertaken in 1978 by Brickman et al. surveyed the happiness level of lottery winners and people who had ended up in a wheel chair one year after the event. Their surprising conclusion was that there was no measurable effect on happiness level

A 2008 study of the Dutch postcode lottery – the same one in which Vrouwenpolder’s millions were won – found  a similar result. Though families had changed some of their life patterns (building a car or rebuilding their house, going to restaurants more often), this had no effect on their happiness.

This is due to a very simple psychological phenomenon: adaptation. Once our situation changes, we very easily adapt to the new reality of our lives. Suppose you are always dreaming of a big house with a pool. Once you have it, at a certain point in time it becomes normal – and it fails to make you happy. Somewhat fortunately, this process of adaptation also applies to negative events, such as losing the ability to walk.

So if you unfortunately win the lottery, what should you do? Their are various recipes for happiness. The most important though is to spend your money on experiences, rather than on material things. Spend your money on a vacation, go visit your friends in far away cities. Even if the experience is short, a good memory can live for a long time.

So what would I do if I won a lottery? I probably wouldn’t change my life that much. I’d keep working, I’d probably wouldn’t move houses and I’d keep this blog. I’d spend some money traveling – seeing Costa Rica and Bhutan. But most likely, you don’t give a damn!

The optimal income for happiness

What is the optimal income for happiness? How much happier are people with a large bank account than those who suffer through the last days of each month? Scientists have done a lot of effort to investigate the relation between money and happiness.

The conventional wisdom in happiness economics states that, indeed, happiness levels rise with income, to a certain point. After this point, the impact on happiness of an additional euro, pound are dollar is virtually zero: more money does not mean more happiness. But is it possible to exactly measure the cut-off point? That is, can we measure what the ideal income is, generating the best happiness bang for the buck?

Eugenio Proto of Warwick University and Aldo Rustichini of the University of Minnesota claim to have the answer. Their research attests that life satisfactions reaches its maximum level at an income level of $30,000, or about the level of Equatorial Guinea using World Bank data (though French people aren’t necessarily the happiest ones).

But Proto and Rustichini’s research reveals there is even more: after this point, people even become less happy. They  explain that this effect arises due to changes in what they label the ‘aspiration level’ of people with a below average income in rich countries.

Simply speaking, when incomes rise, the gap between the have-lots and have-less become bigger. When surrounded by wealthier people, people have higher aspirations for their own life, often irrationally> as the gap between reality and dreams increase, life satisfaction diminishes.

Their data set out the income level versus the likeliness of reporting the highest level of happiness. People in a country with an income per head of $5,600 are 12% less likely to report the maximum number than in a country with an income of $15,000. As incomes rise, the effect disappears. And after $30,000, the link even becomes negative.

What does this mean? Of course, you may consider moving to Equatorial Guinea if you live in a richer country but make less than the holy number of $30,000. Jokes aside, there is more  at stake here. Higher incomes aren’t necessarily a sign of progress. They might be caused by longer working hours, more overtime and less time for leisure, all factors that bring down happiness.

But maybe the real effect displayed by the study is the cost of inequality. Earlier studies have shown that it is not only the absolute figure of income that determines your happiness. It is also about your income relative to what you could make. If you make less than your friends, your colleagues, or than your did in a previous job, this might cause total misery. The moral of the story is simple: if countries care about our quality of life, they should seek to control income inequality. Equal countries, like Denmark, Norway and Sweden are all in the top-five of happiest nations. At least, their high government spending seem to be good for something. Money can’t buy you happiness, the adagium goes, but maybe their high taxes do?