Happiness and the Media
by George Hatjoullis
The media, social and private, seem determined to undermine personal happiness. Quite why this the case is unclear. It seems negative news attracts more attention (gets more hits, sells more advertising) than positive news. The net effect is to make society, all societies, less happy. The constant stream of negativity creates an endless sense of anxiety and fear. Moreover, the response to this relentless anxiety creates behavioural responses that aggravate and validate the initial anxiety.
The problem is evident in all areas of life. My recent blogs How much should you save? and Pension saving and the lifetime allowance address the prevalence of this phenomenon in the context of making provision for old age. The press likes to state that you need to save some impossible amount to avoid penury in old age. The natural response is to get depressed and not save anything and throw yourself at the mercy of the state 40 years on. A different presentation of the same information suggests making reasonable provision for old age is quite possible and well worth doing. If presented correctly many more would make some provision and feel better for it as well as being better off in old age. However, the media has no incentive to present positive scenarios. The moral of this story is perhaps you should think for yourself and use media solely for information. This requires a little critical thinking but it is not too taxing. Let us try it.
A 30-year-old single person has to make some important decisions. Today they may or may not be in a stable relationship and are quite likely to be living at home. Living at home brings its own stresses and strains but is likely to be very specific to individual circumstances. Social convention frowns upon living at home at this age but unless the condition brings specific problems why worry about social convention? When I was young social convention expected one to be married by this age. This convention no longer applies. The first rule of happiness is live your life and not that of Joe Average. Why do you want to be average?
The future is completely unknown and the past is not much of a guide. Things change. So what strategy is best for you in this stark and frightening situation? It rather depends on who ‘you’ are. Someone living in the middle of a homogenous community with a wide social support group will view life very differently from someone living in a heterogeneous community with no reliable support group. In today’s multi-ethnic, multi-cultural, urban society, the ‘average’ conceals some serious dispersion. You do not need to think too deeply about who you are in this sense. Your emotions will reveal it. Trust your emotions and do what feels right today and not what the media tells you is right. In a world of an unknown future and an unhelpful past, the only thing you can control and optimise is how you feel today. But do not let the media tell you how you should feel.
So how does this odd dialogue translate into financial strategy? You could just live for today and let old age look after itself. It is 40 years or so away and a lot will change before you get there. The state may provide and even if you save the state may take it away from you. So why bother? It is certainly true that my retirement is nothing like I expected it to be when I was 30 years old. If I had known then what the situation would be when I retired I would have done a lot of things quite different. I was fearful of the future and sacrificed much happiness in the present trying to secure the future. It was in retrospect an unnecessary sacrifice. But then hindsight is 20/20.
The emotional message is thus think of the future but not to the extent that it makes you unhappy in the present. So try to save some money but don’t worry too much if it is not as much as the media are telling you that you need to save. In my blogs above I tried to illustrate that saving relatively manageable amounts can lead to meaningful long-term outcomes. It is the power of compound interest and averaging at work. I assumed a 2% inflation rate (the Bank of England target), 35bp charges, and nominal equity returns with dividends reinvested of 7%. All assumptions can be justified though they offer no guaranty. If you save £200 pm under such assumptions you will end up with savings of approximately £500k which will be worth roughly half in today’s money. Worth having. Of course this is illustrative not a recommendation. You can vary what you save every month and increase as your pay increases. The point is that regular saving in the right asset class over long periods can have meaningful results. It is the habit, and the asset class, that is important not the amount.