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Book Review: The Wealth of Happiness

by xyonent
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The wealth of happiness: A holistic approach to behavioral finance2024. Meir Statman. John Wiley & Sons.

in Wealth of Happiness, Meir StatmanProfessor Glenn Klimek of Santa Clara University and a prominent thought leader in behavioral finance, explores how financial well-being leads to happiness in life through third-generation behavioral finance.

The first generation describes people as “irrational,” while the second generation describes people as “normal.” Statman similarly describes people as “normal,” but he broadens the lens of finance to see people as complete human beings and in the areas of life well-being: dating/marriage, family, friends, health, work, education, religion, and society.

Financial well-being is an important component (area) of life happiness, but life happiness is what people ultimately want. This book combines scientific findings from scholars across disciplines, including finance, economics, medicine, psychology, and sociology, with practical stories that provide insight into those findings. This important book informs financial advisors, financial planners, financial scholars, and investors about third-generation behavioral finance, which focuses on happiness as people’s primary desire and on integrating finance into lifestyle to achieve both financial and life happiness.

According to Statman, having more money (higher economic well-being) correlates with higher life happiness, but money is not everything and is not enough to evaluate a person. For example, social status affects life happiness. The main purpose of this book is to help readers reflect on what life happiness includes (i.e. what makes life worth living) and to gain insights into how managing their economic well-being can optimize their portfolio of life choices.

Statman’s conclusions about education, health, and work were the most insightful and relevant to me: Although education requires tuition and living expenses, it increases happiness through material benefits such as better employment and higher income, and expressive and emotional benefits such as increased knowledge, lifelong friendships, and higher social status. People who experience high life happiness also have higher perceptions of their health, less self-reported pain, and lower medical risks, and mental illness is the best predictor of low happiness.

According to Statman, we derive material benefits from work in the form of income, but we also derive expressive, emotional benefits from work through identity, meaning, community, dignity, and pride. Work enhances happiness, and happiness enhances job prospects and income. People who work longer live longer. Happier employees increase employee productivity, customer loyalty, and profitability. Unfortunately, few of us are fortunate enough to enjoy happiness in all areas.

One thing wealth advisors can benefit from from this book is Statman’s suggestion that because many of the traditional services of financial advisors have become one-size-fits-all, they must evolve into well-being advisors to capture today’s and future clients. While financial advisors offer advice on asset allocation and portfolio rebalancing, robo-advisors offer similar services at a lower cost. However, robo-advisors cannot act as well-being advisors. Well-being advisors are a potential competitive advantage for financial advisors. By becoming friends with their clients, financial advisors can understand what’s going on in their families and their children’s lives.

In summary, Wealth of Happiness It’s a thoughtful, practical book with research to back up much of Statman’s advice. Financial professionals will benefit from Statman’s call to put finances “on the back burner” and spend more time thinking about happiness in life. The realm of finance is only one of many areas of happiness in life, but it holds a special place because it underlies all other areas: we need money to pay for food, shelter, education, religious endowments, and to maintain our health.

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