Good morning & happy Monday!
“If you aren’t grateful for what you already have, what makes you think you would be happy with more?”
– Roy T. Bennett
Recently I have become fascinated with the topic of diminishing marginal utility.
I know that sounds super nerdy … well, it kind of is … but it’s me, so you’ve probably come to expect that by now. 😉
So, let me adjust my pocket protector and clean my glasses and we can jump in 😉. It’s actually a really fascinating topic.
Diminishing marginal utility is a fundamental concept in economics that describes how the additional satisfaction (or “utility”) a person gains from consuming each extra unit of a good or service decreases as we consume more of it.
Translation: the first bite of pizza is magic, the 5th is really good, the 10th is ok, and if you’re like me by the time you get to the 21st bite you wonder why you didn’t stop around 15. This same math applies to money, stuff, and even bucket-list trips.
Today I’d like to unpack the concept a bit and look at the studies that prove chasing “more” is often a treadmill with a broken speed dial.
Studies on this topic go back to at least 1854 when Economist Hermann Gossen stated ‘The One Law in One Sentence:’ “The magnitude of utility derived from each additional unit of a good decreases as we acquire more of it.”
In plain English: the marginal (extra) utility (happiness, satisfaction, pick your metric) shrinks with every duplicate.
Going back to the pizza example:
| Slice of pizza | Happiness Gain (0-10) |
| 1st | 10 |
| 2nd | 8 |
| 3rd | 5 |
| 4th | 2 |
| 5th | -3 (regret) |
This same concept applies to purchases and experiences.
In a Journal of Consumer Psychology study from 2008 (Dunn, Gilbert, & Wilson) they tracked new purchasers of cars, gadgets, etc. They found that enjoyment from adaptation is brutal … joy from a new iPhone drops 50% within 2 weeks and back to baseline in 6 weeks.
In this study experiences fare slightly better … concert high lasts around 3 weeks but still fades.
I can personally attest to this. I love to travel and when I return from a trip, I feel reenergized and ready to tackle the world. A month later I’m like, “I’m ready for a vacation.”
Money doesn’t fare any better in these studies.
According to a 2010 National Academy of Sciences study (The Kahneman & Deaton Benchmark) emotional well-being (daily joy, laughter, low stress) plateaus around $75,000 household income (2010 dollars ≈ $105,000 today).
Put another way …
- Going from $0 to $50,000/year is life changing (10 on a scale of 1-10)
- Going from $50,000 to $100,000/year is great (maybe a 7 on 1-10 scale)
- Going from $1,000,000 to $2,000,000/year is kinda not that big of a deal (call it a 2 on 1-10)
I remember my first job just before graduating college where my base salary was $32,000/year. I went from basically minimum wage to $32,000/year … I thought I was the richest person in the world.
In 2021 the National Academy of Sciences released a study based on smartphone pings on 33,000 U.S. adults and found that happiness did keep rising with income … but logarithmically.
For those of us who don’t read research papers on this topic: to feel as happy moving from $1 million to $2 million as you did from $100k to $200k, you’d actually need $10 million to $20 million. Good luck with that … no one is cheering more for you on that than me, your financial advisor 😊.
But what are we really chasing with more money, more stuff, and more experiences? Happiness. Yet, every bit of data shows us stuff, experiences and money do not bring happiness (see October 20th Monday morning memo).
I know, not the traditional topic you expect to hear from your financial advisor … but the facts are the facts. Here we are. 😊
Money won’t make us happy, stuff won’t make us happy, experiences won’t make us happy, heck, even pizza won’t make us happy!!! 😉
So, what the heck are we supposed to do?
Many of us are familiar with the Bible passage Philippians 4:13 which says, “I can do all this through him who gives me strength.” But check out what’s said leading up to that statement, “… for I have learned to be content whatever the circumstances. I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. I can do all this through him who give me strength.”
Contentment.
That’s a word we don’t hear very often.
I don’t think in my entire life I’ve ever seen a single billboard, saw a single TV commercial, or observed a single internet ad encouraging me to be content. Not one.
And yet, it may be the key to happiness.
The Apostle Paul says, “I have learned the secret of being content …” Maybe the key to happiness has been in front of us this whole time! We might have chased other things in the pursuit of happiness … money, fame, power, respect, possessions, experiences, etc. … only to find out that they don’t lead to happiness (The actors and actresses in Hollywood have virtually everything on that list, and I’m pretty sure it’s the most miserable place on earth).
So, may I respectfully challenge all of us, myself most certainly included, let’s give contentment a try. It may just be the key ingredient for the happiness we have been desperately seeking.
Thank you for allowing me to share my thoughts on this. I know this is anything but a normal message from a financial advisor, but I’ve never been accused of being normal. 😉
I am so honored to have you as part of my life. Please let me know any way I can support you along your journey.
Make it a great week ahead.