The (Liquid) Nuances Of How Money Buys You Happiness
Sonja Lyubomirsky, who researches happiness, has published a new study in Emotion with two colleagues, (first and second authors) Peter M. Ruberton and Joe Gladstone, on how it isn't just having money that "buys you happiness"; liquidity matters.

Liquidity -- having money actually available for use -- "confers a sense of financial security, which in turn is associated with greater life satisfaction."

Interestingly, they explain that: "Higher income and spending--the amounts going into or out of a person's bank account--were not associated with increased financial well-being" (once liquid wealth was included in the model).

People with low liquid account balances may feel more economically distressed--and thus less satisfied with their lives--than their peers with higher balances, even if their incomes and spending, considered separately from their account balances, would predict high financial security.

To put our results into context, we found that going from having £1 to having £1,000 (a 3-log increase) in one's bank accounts each month--not rags-to-riches, but merely rags-to- sufficiency--is associated with an average gain of 2 points (10% of a 20-point scale) in life satisfaction by virtue of feeling more secure about one's finances.

However, because liquid wealth was log transformed, further increasing liquid assets from £1,000 to £10,000 (a 1-log increase) was associated with an expected increase of just 0.7 further points on the same scale.

As with income (e.g., Kahneman & Deaton, 2010), the role of liquid wealth in life satisfaction appears to be subject to diminishing returns. Our findings thus highlight the importance of holding a minimal financial buffer, but also the relative unimportance of having wealth above sufficiency levels.

More on that:

Holding investments and not being in debt are both associated with greater financial well-being, but having cash "on hand" is meaningful above and beyond those measures of wealth. That is, individuals with cash in their bank accounts feel more confident about their finances, and thus more satisfied with their lives, than those with less cash, regardless of whether or not the former are in debt or possess other investments: Even high-earners with no debt and large investments are happier if they keep some of their wealth easily accessible than if they live with consistently little money left available after expenses.

Ready cash -- an unexpected chill pill!

Their finding points to evolutionary psychologists Leda Cosmides and John Tooby's comment I quote in "Good Manners for Nice People Who Sometimes Say F*ck" about how "Our modern skulls house a stone age mind." We didn't have IRAs in an ancestral environment; we had the meat we could eat in hand before it spoiled. Regarding their "liquid wealth" finding, it makes sense that we are reassured by what is -- admittedly -- a bit of a stretch from goods in hand, but it still appears to come off in our brains as a meaningful form of ready access to resources.

Here's Sonja on my science-based radio show -- one of the earlier ones I did, from back in 2011.