Being ‘financially well’ doesn’t equate to being financially well-off, nor is it measured by wealth or assets. Instead, financial wellness investigates how income and wealth affect human experiences, including positive emotions, life satisfaction, and well-being. It is the research behind the question, does money really buy happiness? Positive psychologists have devoted an entire subfield to the study of finance, wealth, and materialism on human happiness and well-being, defined broadly as the construct that measures one’s overall life satisfaction. Years of research have resulted in a large body of empirical findings on the matter. Yet, the literature is often contradictory and findings are certainly surprising. 

A 2021 study published by Matthew Killingsworth of University of Pennsylvania’s Wharton School used data collected from participants throughout their daily lives via their smartphones to determine one’s experienced well-being. Killingsworth also administered self-report measures to assess individuals’ evaluative well-being. The study, which included participants of varying socioeconomic statuses, concluded that as participants income increased, so did both their experience and evaluative well-being. By itself, this study suggests that more money = more happiness, yet other research distinguishes happiness from experiential and evaluative well-being using a concept called savoring, or as Quidobach and colleagues define as the ability to enhance and prolong positive emotions elicited from life experiences. This study found that wealthier individuals were less likely to experience enhanced, prolonged positive emotions from simple joys, like chocolate, or terms stimulating the feeling of positive emotions, suggesting happiness measured by savoring ability is negatively associated with wealth.

But what does this mean in terms of our own experience with wealth and finances? Does money actually buy, or facilitate the acquisition of, happiness? The answer, in the true fashion of positive psychology, is yes and no. While some studies have found that well-being continues to rise with higher income, the ability to appreciate and savor positive experiences may be tarnished by a surplus of wealth. To think of it more holistically, money itself doesn’t buy happiness, but it may be able to facilitate positive emotions and experiences. However, the visceral feeling of pleasure, happiness, and well-being is contingent upon the individual’s ability to savor, appreciate, and enjoy positive experiences, rather than just having them. 

How can you be financially well?

If finances do play a role in well-being, but money doesn’t guarantee happiness, how can we practice and develop financial wellness? A good practice to not only better understand the impact finances have on your emotional experience, but to also be aware of the pervasiveness money has in our daily lives, is to keep a finance journal for a week. Each day, write down purchases you made, income you pocketed, savings you stashed away, and times you decided not to spend your money. How did these purchases, paychecks, whatever, make you feel? Anxious? Out of control? Satisfied? Happy? There’s no right or wrong answer, both spending and saving money can feel positive or negative. But it’s important to understand how your daily financial decisions are impacting you on a small scale. How a daily coffee does improve your mood, even if it’s momentarily. How paying a monthly bill spikes anxiety. How leaving that top or those shoes behind at the mall really does make you upset. This skill, the ability to develop mindful habits around finances, is what leads to financial wellness. Not exuberant amounts of cash or endless credit limits, but the deeper understanding that money and all the decisions it entails do have an impact on our emotions and daily experiences. 

So money can make you happier, but not always. And well-being, savoring, and positive emotions, all concepts under the umbrella of positive psychology, have an interconnected, bidirectional relationship with finances. Ultimately, what financial wellness tells us is not the correct amount of wealth or a spending budget, but instead underscores the holistic nature of human psychology. Everything has an impact on our mentalities, yet nothing is the ultimate solution to our problems. We are, like positive psychology so adamantly emphasizes, made up of lots of moving parts. And the way we understand, interact with, and feel about money is just another piece to a much larger puzzle. 

What is financial wellness to you? Tell us your thoughts in the comments!