close
close

What Portfolio Is Right For You

Let’s start with learning about you. Answer a few important question, and we can start building your recommended investment strategy based on your financial objectives.

Does Your Neighbors’ Wealth Impact Your Health and Happiness?
December 19, 2019

Does Your Neighbors’ Wealth Impact Your Health and Happiness?

Written By: Andrew Hallam

Don Tetley parked his new Toyota truck between a rusty scooter and an old Honda Civic. The fit 62 year-old walked towards me. He smiled as I shook his outstretched hand. I interviewed Don for a story I was writing about retiring in Thailand. He had been living there since 2002.

“I love living here,” Don said, “because I don’t have to keep up with the Joneses. In Thailand, I get to be Jones.” I published that story ten years ago in a finance magazine. But I never forgot that quote. It made me think. Most people know the cost of living in Thailand is low. The average salary in Thailand is also far lower than it is in the United States. But I wondered if Don was really happy as a result of having more than his neighbors.

Research says that might be true. USC professor Richard Easterlin determined that our happiness grows with our income levels…up to a certain point. His research determined the threshold for maximum happiness is about 50 percent above America’s median household income level. In other words, American households with higher incomes report higher levels of happiness. But happiness doesn’t improve once household income hits about $90,000 a year (in 2019 dollars). His research is known as the Easterlin Paradox.

People who earn far less than $90,000 a year might not like comparing what they have to those in the upper income bracket. That seems to make sense. But this concept could be relative. For example, earlier this year I wrote, Insane Home Prices and Ordinary People. I stayed with some people in Portola Valley, California. My host worked for Apple. After I admired his Porsche, he innocently asked if I owned one too. Clearly, he lived in a different world: one where Porsches, Teslas and Maseratis were regular run-abouts. According to Zillow.com, median home prices in Portola Valley are about $3.7 million.

I wondered how regular people feel in a place like Portola Valley. What’s it like for teachers, office workers, electricians, plumbers, civil engineers and almost everyone else who doesn’t earn a rocket-sized income?

Alissa Quart answers this question in her book, Squeezed: Why Our Families Can’t Afford America. She described people struggling in low-income jobs. But she also referenced studies showing that happiness and income were relative: that people with middle class or upper middle class incomes can feel miserable if their neighbors earn so much more. She says this affects their happiness–and their health.

In 2010, researchers at the University of Warwick and Cardiff University found that money doesn’t improve people’s happiness unless it also improves their social rank. They published their research in a paper titled, “Money and Happiness: Rank of Income, Not Income, Affects Life Satisfaction.”

Glenn Firebaugh and Matthew Schroeder published similar findings for The American Journal of Sociology. In their paper, “Does Your Neighbor’s Income Affect Your Happiness?” they wrote: “What matters most is how much income a person has relative to his or her income comparison group.”

This makes us sound primal, like a bunch of jealous chimpanzees. But our neighbors’ incomes might also affect our health. Michael Daly is an associate professor in behavioral science at the University of Stirling. His research team published, “A Social Rank Explanation of how Money Influences Health.” After studying 40,400 adults in England, they found that people’s income rankings, among specific groups, predicted levels of health.

For example, imagine two people. Let’s call them Beth and Lisa. They both earn much more than the typical UK household. Beth earns more money than Lisa, but Beth’s income ranks among the bottom third when compared to other people in her neighborhood. In contrast, Lisa’s income is lower than Beth’s. But her income ranks among the top third in a middle class neighborhood. Based on Daly’s extensive study, Lisa would have higher statistical odds of being healthier than Beth.

The researchers adjusted for age, gender, marital status and employment status to isolate the variable of health, as it related to relative income ranking. To determine levels of health, they used self-reporting standards and objective medical reports. For example, they measured Body Mass Indexes, to determine obesity. The also assessed for allostatic load (bodily wear and tear based on chronic stress), long-standing illnesses, ratings of health, physical functioning, role limitations and pain.

People don’t have to be rich. But when they have more than their neighbors, they tended to be healthier.

This reminds me of Lake Chapala, Mexico. It’s popular among Americans in search of low-cost retirement locations. Much like Don Tetley, in Thailand, they no longer feel pressured to keep up with Mr. and Mrs. Jones… because they now represent the Joneses. Many of my friends who retired in Mexico look younger today than they did when they first left the United States. I figured they were healthier now because the sun always shines. They exercise more outdoors. They no longer feel the grind of full-time work, so perhaps their stress has dropped. But their relative wealth, compared to their neighbors, might be the best explanation.

This is worth thinking about. Perhaps you’re considering moving to an upscale neighborhood. Perhaps you want a job where most of the employees earn more than you’ll ever make. In such cases, you might want to pause before considering such a move. After all, if your relative income is less than your neighbors, it could have an impact on your health and happiness.

Related Articles

This article contains the opinions of the author but not necessarily the opinions of AssetBuilder Inc. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational puposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Performance data shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

AssetBuilder Inc. is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and expenses carefully before investing.