Sav­ing does makes you hap­pier, stud­ies show

Mon­day, Oc­to­ber 30, 2017 Pay­ing off debt is not as highly re­garded

StarMetro Calgary - - EDUCATION - The as­sO­Ci­aTed Press

The ar­gu­ment over whether you should in­vest or pay off debt usu­ally fo­cuses on fi­nan­cial num­bers, such as rates of re­turn and in­ter­est charges. Maybe hap­pi­ness should be part of the equa­tion as well.

Stud­ies in sev­eral coun­tries, in­clud­ing the U.S., Nor­way, Ire­land and Spain, have found high lev­els of fi­nan­cial sat­is­fac­tion among el­derly peo­ple. Hap­pi­ness with our money sit­u­a­tion tends to rise with age, even though our in­come peaks in midlife and then gen­er­ally de­clines.

Why is that? Fur­ther stud­ies show that what we own and what we owe make a dif­fer­ence. One study of 3,751 U.S. adults ages 30 to 80 found that in­creases in as­sets and de­creases in debt over time “con­trib­ute sub­stan­tially to the life course pat­tern of fi­nan­cial sat­is­fac­tion.”

Fair enough. But then two Texas re­searchers looked into which of those two ac­tions — pay­ing down debt or build­ing up in­vest­ments — was the big­ger con­trib­u­tor. In­creas­ing as­sets was the hands-down winner.


Peo­ple with more debt were less sat­is­fied, but low­er­ing their debt loads didn’t seem to make them much hap­pier, says Rus­sell James, a cer­ti­fied fi­nan­cial planner and di­rec­tor of grad­u­ate stud­ies in char­i­ta­ble plan­ning at Texas Tech Univer­sity in Lub­bock, Texas. James con­ducted the study with Scott Gar­rett, then a doc­toral can­di­date and now a cer­ti­fied fi­nan­cial planner at Ron­ald Blue Trust in Hous­ton. The pair tracked 839 adults age 50 and older for four years to mea­sure the changes.

The re­searchers don’t know why the in­vest­ment ef­fect was big­ger but say per­son­al­ity may play a role. In other words, un­happy peo­ple may be more likely to get into debt.

“If a per­son is dis­sat­is­fied with where they are in life, maybe that makes them spend more on credit cards,” James says.

Fi­nan­cial plan­ners take a pretty bal­anced ap­proach to the “in­vest or pay off debt” ques­tion. They en­cour­age both. They want peo­ple to save for re­tire­ment and emer­gen­cies while ed­u­cat­ing them about the dif­fer­ence be­tween “good” debt, which helps peo­ple get ahead fi­nan­cially, and “bad” debt, which doesn’t.

Plan­ners typ­i­cally pri­or­i­tize pay­ing off high in­ter­est rate debt such as credit cards while tak­ing a slower ap­proach to mort­gages and stu­dent loans, which tend to have lower, taxd­e­ductible rates.


The peo­ple who re­ally need to hear this mes­sage are the do-it-your­selfers go­ing all-in on debt re­pay­ment, not re­al­iz­ing what they may be cost­ing them­selves in the long run. These in­clude peo­ple who are:

• Pass­ing up match­ing RRSP con­tri­bu­tions. There’s re­ally no ex­cuse to turn down free money.

• Pre­pay­ing mort­gages, which is some of the cheap­est money avail­able, rather than sav­ing for re­tire­ment or pay­ing down more ex­pen­sive debt.

• Killing them­selves try­ing to pay off stu­dent loan debt early, es­pe­cially when those loans have low, fixed rates.

• Strug­gling with far more debt than they can re­al­is­ti­cally hope to re­pay.


Hap­pi­ness with our money sit­u­a­tion tends to rise with age, even though our in­come peaks in midlife.

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