Background:

This week’s Research Minute explores the complex and nuanced relationship between money and happiness. In 2023, the DCIIA RRC surveyed 2,500 U.S. workers on their financial indicators and happiness, with a focus on financial planning. The financial indicators that were utilized included financial literacy, household income, financial wellness, spending priorities, perceptions of financial security, comfort with debt, and the existence of a personal finance plan. An assessment of subjective happiness was also included. A Structural Equation Model (SEM) was then utilized in the study’s analysis, finding correlations between happiness and several of the financial variables.

Findings:

Academic literature on the subject indicates a complex, non-linear connection between well-being and money, involving factors like individual health, societal views, social status, and inequality. The RRC’s study reveals a notable correlation, with individuals who perceive being financially secure reporting higher life satisfaction.

The SEM analysis indicates that there is a significant correlation between financial wellness and happiness, as those who report greater financial wellness are happier. The analysis also validates the link between physical health and happiness, showing that better self-reported health contributes to greater happiness. Finally, the report indicates that having a financial plan moderately influences happiness.

Bottom line:

These findings highlight the need to foster financial literacy, enhance perceptions of financial security, and encourage proactive financial planning for overall well being. The practical implications include emphasizing the importance of having a financial plan for encouraging higher levels of happiness, recognizing financial wellness as essential for a fulfilling life, and informing employers about the significant role of financial well-being in shaping workforce happiness by tailoring benefit offerings and investing in workplace financial wellness programs.

This Research Minute is a complement to the  RRC guest commentary, “Coining Contentment: Understanding the Dynamics of Money and Happiness” that is published in the Journal of Retirement.