Spending money to be with others is what gives us satisfaction

iStock 000006144317Medium(copy)(copy)-865Most of us are not very good at predicting what is going to make us happy in retirement. We imagine spending money on the items we couldn’t afford earlier in life like a holiday home, camper van and constant travel, but are these things really going to make us happy? According to a recent US research report published by Dr Michael Finke CFP (June 2019), the answer is NO. Finke and others investigated whether spending on various categories of goods and services predicts life satisfaction in retirement. Clothes, durable goods, cars, and gifts are all fun things to spend money on, but they don’t significantly increase life satisfaction. One category does: leisure spending.

Finke’s research revealed that social spending categories, such as eating out with friends or going on vacations, were the things that really moved the needle on life satisfaction. Spending money on things doesn’t make us any happier but spending money to be with other people is what gives us satisfaction.

To many people outside of economics, this conclusion isn’t surprising. Like our closest primate ancestors, we’re programmed to enjoy activities that create greater cohesion within our social group. We’ve evolved to feel good when we’re with other people, especially other people we like.

In fact, the same part of a chimpanzee’s brain that is activated when one primate grooms another is the part of our own brain that activates when we laugh and tell stories with friends. The reason is that social species, like advanced primates, were much more successful because they could act cooperatively as a group to hunt and defend each other. And our brains are wired to maintain the social bonds that made our ancestors more successful as a species.

So why do some retirees love traveling in a campervan while others hate it? The answer has far more to do with social interactions than it does with scenery or the joy of the open road. Those that love the campervan life are the ones who enjoy spending time with others while on the road. Those that hate it, likely never establish bonds with others they meet at caravan/campervan parks.

When planning your retirement, recognise behavioural finance principles relating to social interaction. We’re likely to be happier if we live in the same place as our friends, or if we move to a living environment that is less likely to result in loneliness.

Second, try renting rather than buying a lifestyle before making a financial commitment. Always wanted to live by a beach? Rent a vacation home for a couple of months and see how you like it. Better yet, stay where you are and downsize your lifestyle to free up extra cash for spending time with friends and traveling. You’ll likely be a lot happier spending the $250,000 on cruises and other holidays with friends than on a campervan purchase that takes you farther away from them.