Charting the Relationship Between Money and Happiness
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Can money buy you happiness?
It’s a longstanding question that has many different answers, depending on who you ask.
Today’s chart approaches this fundamental question from a data-driven perspective, and it provides one potential solution: money does buy some happiness, but only to a limited extent.
Money and Happiness
First, a thinking exercise.
Let’s say you have two hypothetical people: one of them is named Beff Jezos and he’s a billionaire, and the other is named Jill Smith and she has a more average net worth. Who do you think would be happiest if their wealth was instantly doubled?
Beff might be happy that he’s got more in the bank, but materially his life is unlikely to change much – after all, he’s a billionaire. On the flipside, Jill also has more in the bank and is likely able to use those additional resources to provide better opportunities for her family, get out of debt, or improve her work-life balance.
These resources translate to real changes for Jill, potentially increasing her level of satisfaction with life.
Just like these hypotheticals, the data tells a similar story when we look at countries.
The Data-Driven Approach
Today’s chart looks at the relationship between GDP per capita (PPP) and the self-reported levels of happiness of each country. Sources for data are the World Bank and the World Happiness Report 2017.
According to the numbers, the relationship between money and happiness is strong early on for countries. Then later, when material elements of Maslow’s hierarchy are met, the relationship gets harder to predict.
In general, this means that as a country’s wealth increases from $10k to $20k per person, it will likely slide up the happiness scale as well. For a double from $30k to $60k, the relationship still holds – but it tends to have far more variance. This variance is where things get interesting.
Some of the most obvious outliers can be found in Latin America and the Middle East:
In Latin America, people self-report that they are more satisfied than the trend between money and happiness would predict.
Costa Rica stands out in particular here, with a GDP per capita of $15,400 and a 7.14 rating on the Cantril Ladder (which is a measure of happiness). Whether it’s the country’s rugged coastlines or the local culture that does the trick, Costa Rica has higher happiness ratings than the U.S., Belgium, or Germany – all countries with far higher levels of wealth.
In the Middle East, the situation is mostly reversed. Countries like Saudi Arabia, Qatar, Iran, Iraq, Yemen, Turkey, and the U.A.E. are all on the other side of the trend line.
Within regions, there is even plenty of variance.
We just mentioned the Middle East as a place where the wealth-happiness continuum doesn’t seem to hold up as well as it does in other places in the world.
Interestingly, in Qatar, which is actually the wealthiest country in the world on a per capita basis ($127k), things are even more out of whack. Qatar only scores a 6.37 on the Cantril Ladder, making it a big exception even within the context of the already-outlying Middle East.
Nearby Saudi Arabia, U.A.E., and Oman are all poorer than Qatar per capita, yet they are happier places. Oman rates a 6.85 on the satisfaction scale, with less than one-third the wealth per capita of Qatar.
There are other outlier jurisdictions on the list as well: Thailand, Uzbekistan, and Pakistan are all significantly happier than the trend line (or their regional location) would project. Meanwhile, places like Hong Kong, Ireland, Singapore, and Luxembourg are less happy than wealth would predict.
Ranked: The Best and Worst Pension Plans, by Country
As the global population ages, pension reform is more important than ever. Here’s a breakdown of how key countries rank in terms of pension plans.
Ranked: Countries with the Best and Worst Pension Plans
The global population is aging—by 2050, one in six people will be over the age of 65.
As our aging population nears retirement and gets closer to cashing in their pensions, countries need to ensure their pension systems can withstand the extra strain.
This graphic uses data from the Melbourne Mercer Global Pension Index (MMGPI) to showcase which countries are best equipped to support their older citizens, and which ones aren’t.
Each country’s pension system has been shaped by its own economic and historical context. This makes it difficult to draw precise comparisons between countries—yet there are certain universal elements that typically lead to adequate and stable support for older citizens.
MMGPI organized these universal elements into three sub-indexes:
- Adequacy: The base-level of income, as well as the design of a region’s private pension system.
- Sustainability: The state pension age, the level of advanced funding from government, and the level of government debt.
- Integrity: Regulations and governance put in place to protect plan members.
These three measures were used to rank the pension system of 37 different countries, representing over 63% of the world’s population.
Here’s how each country ranked:
The Importance of Sustainability
While all three sub-indexes are important to consider when ranking a country’s pension system, sustainability is particularly significant in the modern context. This is because our global population is increasingly skewing older, meaning an influx of people will soon be cashing in their retirement funds. As a consequence, countries need to ensure their pension systems are sustainable over the long-term.
There are several factors that affect a pension system’s sustainability, including a region’s private pension system, the state pension age, and the balance between workers and retirees.
The country with the most sustainable pension system is Denmark. Not only does the country have a strong basic pension plan—it also has a mandatory occupational scheme, which means employers are obligated by law to provide pension plans for their employees.
Adequacy versus Sustainability
Several countries scored high on adequacy but ranked low when it came to sustainability. Here’s a comparison of both measures, and how each country scored:
Ireland took first place for adequacy, but scored relatively low on the sustainability front at 27th place. This can be partly explained by Ireland’s low level of occupational coverage. The country also has a rapidly aging population, which skews the ratio of workers to retirees. By 2050, Ireland’s worker to retiree ratio is estimated to go from 5:1 to 2:1.
Similar to Ireland, Spain ranks high in adequacy but places extremely low in sustainability.
There are several possible explanations for this—while occupational pension schemes exist, they are optional and participation is low. Spain also has a low fertility rate, which means their worker-to-retiree ratio is expected to decrease.
Steps Towards a Better System
All countries have room for improvement—even the highest-ranking ones. Some general recommendations from MMGPI on how to build a better pension system include:
- Increasing the age of retirement: Helps maintain a more balanced worker-to-retiree ratio.
- Enforcing mandatory occupational schemes: Makes employers obligated to provide pension plans for their employees.
- Limiting access to benefits: Prevents people from dipping into their savings preemptively, thus preserving funds until retirement.
- Establishing strong pension assets to fund future liabilities: Ideally, these assets are more than 100% of a country’s GDP.
Pension systems across the globe are under an increasing amount of pressure. It’s time for countries to take a hard look at their pension systems to make sure they’re ready to support their aging population.
How COVID-19 Has Impacted Black-White Financial Inequality
COVID-19 has worsened Black-White financial inequality, with Black Americans more likely to see negative impacts to their job and income.
How COVID-19 Impacted Black-White Financial Inequality
COVID-19 has disrupted everything from economic markets to personal finances, but not everyone feels its effects equally. When compared with White Americans, Black Americans’ financial situations have been disproportionately affected by the pandemic.
In this infographic from McKinsey & Co., we outline the financial vulnerabilities of Black Americans, their increased usage of financial services since the onset of the pandemic, and their lower satisfaction levels with those services.
Financial Vulnerabilities of Black Americans
Compared to White Americans, more Black Americans say their job and income have been negatively impacted by COVID-19.
|My job has been negatively impacted by COVID-19||My income has been negatively impacted by COVID-19|
Looking forward, Black Americans also report greater job security concerns and have less savings to protect themselves financially. In the event of a job loss, 57% of Black Americans report their savings would last four months or less, compared with 44% of White Americans.
With less of a cash buffer on hand, Black consumers are also more likely to have missed a recent bill payment.
|Skipped at least 1 payment||Partially paid at least 1 bill||Paid in full|
This includes being unable to pay for basic items such as utilities, telephone and internet, and mortgage payments.
How do they begin to manage these challenges?
Use of Financial Services
Black Americans increased their use of financial services more than White Americans.
Banking activities in the past two weeks, per March-June 2020 surveys
|Withdrew cash||Deposited cash||Deposited checks||Contacted bank for service on account||Opened new accounts||Received advice on digital tool usage|
For example, Black Americans were about twice as likely to request account service, open an account, or receive advice on digital tools. In addition, Black families were more likely to leverage a fintech platform and have been more active in opening fintech accounts since the start of the COVID-19 crisis.
However, as Black Americans seek out more financial help, some are not happy with the service they receive.
Satisfaction with Financial Services
Overall, Black families are less satisfied than White families across all types of financial activities. These differences were most pronounced for digital tool advice, where 38% of Black Americans were dissatisfied or very dissatisfied, compared with just 12% of White Americans.
Even though Black people were less satisfied with banking services, they were more likely to say that bank performance was above their expectations. This may suggest that expectations are lower for Black families than they are for White families.
Black Americans were also much less likely to trust their financial advisor.
|Do not trust/losing trust||Indifferent||Gaining trust/trust|
From March-June 2020, the percentage of Black people distrusting their advisors rose from 12% to 32%. Over the same time period, White people’s distrust of financial advisors remained stable at 10%.
A notable exception: White and Black Americans were both satisfied with fintech providers. Only 5% of White Americans and 8% of Black Americans expressed some level of dissatisfaction with fintech companies.
Time to Examine the Financial System?
COVID-19 has perpetuated Black-White financial inequality. Data shows that Black families are more likely to be financially vulnerable, and increase their use of financial services during the COVID-19 crisis. However, they are less likely to feel satisfied with these services.
Financial institutions can urgently review their remote and in-person customer service procedures to ensure the needs of all families are being met.
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