Morgan Housel: Why Money Is Happiness

This article is an excerpt from the Shortform book guide to "The Psychology of Money" by Morgan Housel. Shortform has the world's best summaries and analyses of books you should be reading.

Like this article? Sign up for a free trial here .

Why do they say “money can’t buy you happiness”? Did you know that statement is fundamentally wrong?

In his book The Psychology of Money, Morgan Housel explains that money buys you control over time, which is the key driver of happiness. When you have control over how you spend your time, you can spend it on things that bring your happiness.

Here’s why money is happiness if used responsibly.

Money Buys Us Control Over Our Time

In his book The Psychology of Money, Morgan Housel explains why money is happiness: when you have control over your time, you can choose what to do and when you want to do it. Housel argues that this ability—this flexibility—is essential for two main reasons. First, the more flexible you are, the more options you have—and the more economic opportunities you have access to. For example, you can afford to take time off to develop a new skill that sets you apart from your competition instead of getting stuck in a dead-end job. Second, the more flexible you are, the more of a safety net you have to endure the unexpected. For example, if you lose your job, you can take your time choosing your next job; you don’t have to take the first one you’re offered out of economic necessity.

(Shortform note: Financial flexibility isn’t just valuable for individuals—it’s valuable for companies, too. The Covid-19 pandemic prevented many companies from making money, either because they couldn’t provide their goods or because people could no longer afford their services. In such a situation, financial flexibility matters: One paper found that the stock price of highly flexible firms fell by 26% less than the stock price of firms with low flexibility during the collapse period” of February 3 to March 23, 2020.)

Housel argues that having a sense of control over your life is so essential that when we don’t have it, we rebel. Psychologists call this phenomenon “reactance:” People who feel like they don’t have control will refuse to do things they want to do just to regain that sense of control. For example, you might be thrilled about your job’s holiday party—but if they require you to go, you may feel differently.

The Scarcity Principle: Why You Want Control More When You Don’t Have It

Our reaction to having no control over a situation may also be due to the scarcity principle—the idea that we find things with limited availability more appealing. In Influence, psychologist Robert Cialdini defines reactance as an adverse reaction we have to any restriction of our choices and explains that we don’t exhibit it if something is freely available because we don’t feel restricted. But scarcity limits our choices, especially if what we desire was previously abundant—so when something is scarce, we desire it even more than we did before. In other words, when control grows scarce, we want control even more than we did before and so we exhibit reactance.

Moreover, Housel suggests that Americans’ lack of control has caused a national satisfaction problem: American happiness levels aren’t as high as they should be because we lack control over our time. Housel explains that Americans’ median income has nearly doubled since 1955. If money made us happier, we should be twice as happy as we were 50 years ago. But we haven’t become significantly happier since 1955. Housel argues that this is because our relationship with time and work has changed. In the 1950s, most people performed some kind of physical labor. Their jobs ended when they left their workplace. But nowadays, many more people do knowledge work, so we think about our jobs long after we leave the workplace, making us feel like we’re always working and that we don’t have control over our time. Therefore, we’re not as happy as we used to be.

(Shortform note: In direct contrast to Housel, psychologist Steve Pinker suggests that we might be less happy than we used to be because we have too much control over our lives. In 1955, there were strict expectations regarding people’s rules—for example, people had far fewer career options. He suggests that today, we have more freedom but we also have more uncertainty: When you have freedom to choose, you don’t always know what to choose. This uncertainty, Pinker suggests, causes anxiety and reduces our happiness.)

So how can you become happier? Housel admits that this is a difficult dilemma because it’s so individual: Different things make different people happy.

However, knowing what makes most people happy can help—and according to end-of-life interviews, people typically value not consumer purchases but the ability to develop quality relationships or to devote themselves to bettering the world. In other words, most people value the things they had the luxury to do because they controlled their time. Therefore, having more control over your time will likely make you happier, too.

(Shortform note: One way to increase your sense of control over your time—and thus your happiness—may be to determine how much an hour is worth to you. Paying an accountant to file your taxes may initially seem wasteful. But if the time you save doing your taxes gains you more financial value—and allows you to do something you want to do with that time—it may be worth the cost.)

Morgan Housel: Why Money Is Happiness