Money Doesn’t Buy Happiness, but Power Might.

Morningstar psychographic research shows the effect of empowerment on financial wellbeing.

Which statement do you most agree with? The answer you choose could make all the difference in the world.

a. I create my financial destiny.

b. I have very little power over my financial situation.

In a recent study of US residents, we asked hundreds of people to choose between the two sentences above, and then looked at how their answer to that question correlated with other factors in their financial lives. We examined income, age, education, gender, financial habits, and the emotions people experienced when dealing with money. With respect to emotions, we wanted to know how often people were experiencing positive and negative emotions when dealing with money in general. We asked them to fill out the following scorecard:

The results were striking.


First, the obvious: yes, there was a significant and positive relationship between income and overall happiness.

Overall emotions were calculated by adding up the total Positive Emotions score (on a scale of 0–20) and subtracting the Negative Emotions score (scale of 0–20). A person’s overall financial emotions range from -20 to +20, with 0 meaning equal positive and negative emotions. Those whose score is negative had more negative emotions than positive, and those with a positive score above had more positive emotions than negative.

But, as the plot above shows, there was not a very strong difference between groups, and overall, when we only looked at income nobody was very happy! What was especially striking was what happened when we separated people according to their feelings about personal power in their financial life.

We found that people who believe that they create their own financial destiny were having mostly positive experiences with money, while those who felt powerless were having mostly negative ones.

This effect was still significant when we controlled for Income, Age, Gender, Education, and Number of Dependents. The relationship is robust: People earning less than $10K/year who feel empowered in their financial lives are having a better experience with respect to money than those who earn $200K/year, but feel powerless.

The group on the left believes they create their financial destiny. The group on the right feels very little power in their financial lives. On average, people who feel financially empowered are far more likely to feel satisfaction, pride, peace, and joy as well as fewer feelings of helplessness, anxiety, fear, and sadness, regardless of income level. By contrast, those who believe they do not have personal power in their financial lives experience mostly negative feelings with respect to money, regardless of income level.

The lesson here is fascinating: A sense of personal power, not money itself, may be the key to peace, joy, pride, and satisfaction in our financial lives.

What’s an Advisor to Do?

If a client is exhibiting signs of financial anxiety, helplessness, or malaise, help them to see the power that they have. Show them the results that their choices have made, and allow them to take credit for positive change over time.

Even people who are not primary earners often have much more control over their financial life than they think. Are they the shoppers of the household? Do they participate in decisions about vacations, living costs, children’s schooling, etc.? Are they a source of emotional and moral support for the breadwinner? These are all areas where their power is manifest in their financial lives. Help them to feel the power that they have, and their sense of financial wellbeing may naturally improve.

Interested? There’s More…

The results reported here are a small part of a larger study that Morningstar’s Behavioral Insights Team has conducted on the psychological factors of financial wellbeing. More detailed versions of these and other findings will be available in forthcoming white papers from Morningstar. Stay tuned to this thread to hear about their release.