The connection between money and happiness is tenuous but real.

    It's safe to assume that most individuals would rather be wealthy than poor. But wealth, and to some extent happiness, are subjective terms with different meanings to different people. The naturalist John Muir is purported to have once snidely remarked about the avaricious railroad baron E.H. Harriman: "I am richer than Harriman. I have all the money I want and he hasn't."

The relationship between money and happiness has been debated by philosophers, studied by psychologists and increasingly considered by financial advisors when it comes to handling clients. "I think the planner must begin by answering the question of what matters most to the client," says Susan Galvan, co-founder of the Kinder Institute of Life Planning. "If you haven't listened well enough to hear what matters most, the connection between money and happiness in the financial plan won't ever be met."

The so-called science of happiness, or well-being, is a buzz phrase that's been fodder for magazine covers, radio discussion panels and numerous books that opine on what makes people happy. Those who study such things find that happy people generally have strong relationships with family and friends, devote themselves to a favorite pursuit or charity or engage in new and challenging activities that stimulate the mind. Spiritual matters can also play a role.

Of course, money can be part of the equation by providing the means, if not the freedom, enabling people to pursue things that lead to fulfillment and create happiness. If used wisely, money can be a beautiful thing indeed. But as many advisors know, money can also engender bad habits and negative mindsets that make happiness an elusive goal.

"Happiness could be correlated with not being poor," says Ellen Siegel, a fee-based certified financial planner in Miami. "What does poor mean? It depends. I don't have any poor clients, but I have clients who feel that they're poor because they can't have what they want. "

Siegel believes most of her clients are happy, especially those who have the funds to follow their hearts by traveling, helping family members or giving to charities. But some clients lack an attitude of gratitude for what they have. They're pushing their mid-fifties or early sixties and are cranky because they feel they're financially behind where they thought they'd be at that point in their lives.

Siegel works in tandem with a psychotherapist to create what she calls "mindful money" workshops. "Money is more than just trading beads," she explains. "If it wasn't, there wouldn't be so much angst surrounding it." Her workshops try to address and overcome money-centric issues from the past that negatively impact how people view and interact with their finances. Siegel says the program can help people forge more powerful relationships with money that redirects their focus and enables them to use it for things that make them happy.

Perhaps Siegel's crankier clients could take a cue from the Masai, an East African tribe of traditional herders who lead a primitive existence and live in dung huts. A 1985 survey by two researchers, Ed Diener of the University of Illinois and Martin E.P. Seligman of the University of Pennsylvania, found that the Masai and respondents from the Forbes list of the 400 wealthiest Americans exhibited similar levels of satisfaction and well-being.

The money-and-happiness issue begs the chicken-and-egg question: Which comes first? Diener, a psychology professor who specializes in well-being issues and whose personal Web site features a row of nine smiley faces on the home page, finds that happy people generally have higher incomes later in life. This suggests that being happy might be a trait that helps people earn fatter paychecks because they're more sociable, are well-liked by others and do well in leadership positions.

Are We Happy Yet?

By most economic measures, the United States is wealthier than it ever has been. At the same time, some studies suggest that our sense of well-being hasn't kept pace. David Myers, a social psychologist at Hope College in Holland, Mich., writes that the real income of Americans has doubled since 1957, the year that economist John Kenneth Galbraith labeled the U.S. as The Affluent Society. By and large, we're now awash in a surfeit of toys, gadgets and consumer goods. But Myers says the number of Americans who say they are "very happy" has declined slightly, from 35% to 30%. "We are twice as rich and no happier," he writes. "Meanwhile, the divorce rate has doubled, the teen suicide rate has more than doubled and increasingly our teens and young adults are plagued by depression."

That's not to suggest that living in dung huts like the Masai is necessarily a recipe for an earthier equilibrium. But financial advisors can help clients-who by the nature of the industry are far from indigent-to get a better grip on reality about their finances and the role that money can play in their lives. "I've discovered that one of the most important things clients must understand is that money is a tool and not a goal," says Michael Kresh, a fee-based planner in Islandia, N.Y. "People who don't understand that can't possibly be happy with money. If they think it's a goal, then what happens when you achieve it? You'll just want more money."

That notion plugs into hedonic treadmill theory, which basically says that things you do to make yourself happier create only a temporary buzz that wears off and then you return to your inherent base level of happiness. The implication for the relationship between money and happiness is simple: Keeping up with the Joneses is a losing proposition from a psychological and, for the acutely spendthrift, a financial standpoint.

For the record, subsequent reexaminations of the original 1971 theory leave open the possibility that people can indeed make themselves happier by changing certain things in their lives. That said, human nature suggests that pursuing wealth for wealth's sake, what could be called the hedonistic treadmill, won't create long-lasting changes to one's sense of happiness.

Money can be a very complex and emotionally charged concept. "In western society it's ingrained in our sense of identity," says Todd Kashdan, a psychology professor at George Mason University who saw the pursuit of wealth first-hand as a former specialist on the floor of the New York Stock Exchange. "Also, we're bombarded by the mass media with messages telling us what we don't have. There's no message telling us we should be more aware of and appreciative of what we have."

Notwithstanding studies suggesting that Americans' sense of well-being hasn't changed over time despite a rise in national wealth, Kashdan notes that levels of happiness are moderately high at a mean level. What interests him as a researcher is trying to explain the variability in the mean-the motives behind what makes people happy or unhappy. "That's why it's valuable for financial advisors to ask questions not necessarily geared toward acquiring wealth," he says, "but to ascertain the motives and values in a client's life. What do they want on their epitaph?"

That's similar to a question that Scott Kays poses to his clients. "We try to get across the point that you only have a certain amount of time, so what do you want to do with that?" Kays, founder of the fee-based money management firm Kays Financial Advisory Corp. in Atlanta, believes his happiest clients are those who aren't attached to their money. They have a higher purpose in mind such as philanthropy.

Kays says he doesn't practice life planning per se, but he recognizes well-being issues in certain clients, particularly among overspenders. He tells them they're going to run out of money unless they address the underlying issue. He'll broach the problem by trying to find out where they spend their money and why that's important to them. "If a client lets us dwell on the matter, they'll tell us that the spending represents security to them or maybe something else. When they themselves finally recognize the problem they'll sometimes say, 'Wow, I never thought of that.' Then they're fine."

But it's not always that easy. "You start to probe some clients and they're ice cold, so you back off," says Kays.
Kresh tries to emphasize to clients that money, when used properly to achieve a higher goal, is the path to deeper happiness than the actual money itself. He says his firm spends a lot of time counseling clients on family issues and other areas relating to the whole person. "Our job is to help clients solve problems that keep them from being happy," says Kresh, adding that he's reluctant to use the term "happy" because it's a hard concept to define. "I provide the most value and benefit by stepping outside the perceived traditional box of the financial manager and getting involved in life planning issues."

Beyond The Numbers

Bryan Lee, founder of Strategic Financial Planning in Plano, Texas, engages his clients' children in the planning process as a way to nip in the bud potential problems relating to money and well-being. "I think it's important to start early to instill good habits about money," he says.

He'll set up a meeting for the children to attend, and he likes to establish special accounts with the parents where they provide a dollar-for-dollar match for each dollar a child puts into their account. The children can follow the portfolio online, and Lee believes it teaches them the value of money and investing.

This past holiday season, Lee played Santa by distributing the KidsWealth Money Kit program as a gift to clients' children ages 4 through 12. The program contains tools to teach kids how to manage their money and tries to instill the notion that wealth is a state of mind. Among other things, it provides various wallets for different purposes such as personal savings, charitable giving or future education. If a kid gets a $10 allowance, they decide with the parents what percentage of the money goes into which wallet. It teaches them how to work from a budget.

Lee believes that small things like that can help circumvent feelings of entitlement among children of wealthy parents. "I don't pretend to be a child psychologist or have all of the answers on how to do it," says Lee. "But we make sure that parents are aware of these issues, otherwise their kids might become a money pit until they get into their thirties or forties."

Michael Dubis, president of Touchstone Financial in Madison, Wis., believes that the raison d'etre of financial advisors makes them uniquely positioned to help clients align money with well-being. "We got into this business to serve," he says, "and there's a lot of research correlating happiness with serving others. So right away we have the foundational component where advisors get to connect with clients."   

Dubis is, well, dubious about the concept of life planning to achieve client happiness, at least as it applies to analytical methods that put people into boxes based on personality types. "Money is the most powerful secular force on earth," he says. "Based on that, a lot of what we do revolves around life planning because money exerts such a powerful influence."

The key to achieving this rests on forging authentic client relationships aimed at promoting happiness, says Dubis. Borrowing from the work of University of Wisconsin researcher John Nelson, he looks at happiness as three integrated circles comprised of mental, physical and financial health.

Financial advisors can play a direct role with the money component, but Dubis believes they can also positively influence the other two aspects by plugging clients into qualified outside resources. His resource partners include fitness coaches and money counselors. He's big on the issue of career asset management, and he recently helped a client unhappy with her job by hooking her up with a career counselor versed in the areas of skills, awareness and networking. And Dubis will delve into spiritual matters with clients if the topic comes up. "I can't talk to them about Buddhism, but I can connect them with a person at the community center who's plugged into it."

Dubis uses his newsletter to touch on issues beyond traditional financial advice. He'll reference books such as The Number and others that relate to money and well-being, and will include articles relating to children, cardio-vascular fitness or other life-related topics. Most of all, Dubis thinks advisors have to walk the walk before they can help their clients in meaningful ways relating to life planning. "You need to be aware of your own life to have authentic relationships with clients."

So in the end, can money buy happiness? Galvan of the Kinder Institute of Life Planning thinks that is a false question because money is an external issue and happiness is an internal issue. "The two worlds may intersect at points," she offers, "but one is not causal to the other."

Galvan sees money as society's circulatory system, carrying needed resources from one place to another. "Money helps sustain our lives," she says. "We're not happy just because we have blood flowing through our veins, but it does help keep us alive."

To get more from our blood-er, money-Galvan says advisors need to help clients access and articulate their dream of freedom, whatever that might be. It might have more to do with time than money. It might be centered on the quality of relationships or with health.

"We need to have this conversation about what would most fulfill people in life," says Galvan. "We want to put this at the center of the financial plan, and any strategies, investments and planning for fiscal health should revolve around that central desire."