How Can We Feel Happy Investing Rather than Consuming?
Last Friday I featured part one of a multipart series on behavioral finance by RIIA Founding Chairman & Executive Director, François Gadenne. In today’s second installment, François asks, “Why can’t we be happy with what we have?”
One of the consequences of having evolved in a world of scarcity is that we are built to work day after day. We are built to keep striving no matter the accomplishments, no matter the setbacks. Those who worked like that survived and we are their descendants.
It is our evolved nature to never be satisfied and it can be expressed in the form of an equation: “ S = P – E ”. Alternatively, we can express the equation in words: “Satisfaction equals Performance minus Expectations”.
Sadness or happiness derives from the difference between what we expect and what we get. We are happy when we get more than we expected. We are happy when we acquire.
Based on this equation, it would appear that happiness does not derive from having a lot of things. Instead, it would appear that it comes from acquiring a lot of things. Continuous flows of things make us happy. Static stocks of things do not make us happy.
This would seem to answer an admonition that many of us must have heard before: Why can’t we be happy with what we have? Why can’t we just get along with what we have?
It is in our nature to never stop seeking. If we stopped, those who would continue would eventually have more resources to create the next generation. It is a good thing for the sake of our children that there is always something interesting around the corner and that we always yearn for more.
Consuming is a great way to feel happy. Hurray for Capitalism and its natural fit with our Human Nature. However and for most of us, consuming means buying liabilities more often than buying assets.
Liabilities are things that take money out of our pocket long after we spent money to acquire them in the first place. Examples of such liabilities include our residence, our cars, our consumer electronics… Can you see the pattern?
As we contemplate retirement, we need to consume less now so that we can save more for later. How can we redirect our natural thrill to acquire so that we buy assets rather than liabilities? How can we be happy buying things that put money in our pocket rather than buying things that take money out of our pocket?
The answer may come in two parts:
- Better communications: Present the asset acquisition opportunities in the context of a Personal Income Statement and a Personal Balance Sheet,
- Better products: Find assets that provide direct and regular reinforcement of the intended goals.
In preparation for the next post, let’s think about our Personal Income Statement: What assets, if any, do we buy to get our daily thrill of acquisition?
©Copyright 2007 David A. Macchia. All rights reserved.