Escaping the financial treadmill of hedonism
Spending more does not win in the health and happiness stakes, writes Martin Hawes.
Areport last week showed just under 10 per cent of people earning over $100,000 per year are finding it difficult to live on their income. A piece on Stuff quoted several financial advisers and psychologists, none of whom expressed surprise that the figure was so high. I am not either.
Of course, some will spend a bit more than they earn regardless of their income figure.
I have written previously on these pages about the hedonic treadmill. As a person makes more money, expectations and desires rise, with no permanent gain in happiness or satisfaction.
For some, a pay rise does not mean more savings, it means more expenditure – but with no increase in happiness.
It seems to me that the number of people living beyond their means (even when those means are $100,000 per year) is increasing. If so, what are the causes of the increase? It is easy to say that the hedonic treadmill is hard-wired into us. It is also easy to assume that there is today greater temptation for consumerism than there was in the past – so much is on offer.
Both of these are undoubtedly true – but they are perhaps not the full answer. I think property prices are another factor for people finding themselves continually stretched. Many people have very high mortgages and this debt takes up a lot of their incomes, even when that income is $100,000 per year. People often talk about a ‘‘property ladder’’. This assumes that over time families buy bigger and better houses.
The property ladder, with its idea of a series of more expensive houses, is an example of the hedonic treadmill. People continue to climb the ladder and each step means increased debt. The steps up the ladder, like a treadmill, can continue indefinitely – or until a family finds that it has gone too far and the budget becomes difficult. Sure, they might be getting some good capital gains but their income, even when it is high, becomes stretched.
The increase in house prices over recent years has seen an increase in the size of mortgages. Mortgages today are big and the cost of servicing them eye watering - even at their current low rates.
Worse still, interest rates are low presently and in time likely to rise. I do not necessarily think they will rise a huge amount – but for those who are already stretched, even a small rise will add to their difficulties. Servicing a mortgage is a locked-in cost. You cannot cut down on your mortgage cost as you can reduce your entertainment expenditure, or even your grocery bill.
With an increase in interest rates there will be some who find that they have stayed on the treadmill too long and have bought too much house.
Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. He is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com.