Should your standard of living rise?

by Philip Brewer on 25 July 2008 22 comments
Photo: Philip Brewer

Studies show that a high standard of living doesn't make people happier.  People who live in mansions and penthouses aren't any happier than people who live in suburban houses, small apartments, or even shacks.  An increase in standard of living does make people happier, but only temporarily.  That has implications for managing your standard of living.

Rising standards of living

A gradually rising standard of living tends to happen automatically.  There are three powerful trends driving that:

  • Durable items (bed, chair, pots and pans, TV) can be purchased once and then add to your standard of living for years to come.
  • Capital, once invested, can produce income indefinitely.
  • Wages and salaries tend to rise, as you become more skilled at your job and demonstrate that you're a dependable worker.

It used to be that these automatic trends played out in most people's lives.  You'd come out of school broke, you'd get a job, you'd accumulate the things you needed, get a home when you could afford it, and so on.  Certain social structures (hope chests, housewarming parties, wedding and baby showers) existed to ease some of the tougher transitions.

Once you got past those early tough stages, things got pretty good.  By the time your kids reached college age, your income was reaching its peak and (if you'd managed to save and invest at least a little money right from the start) you also had a substantial investment portfolio.  If you didn't have too many kids, you were done paying college expenses with many years of earning ahead of you, giving you a good chance to accumulate some real wealth, with the attendant opportunities to enjoy a moderate level of luxury, donate money to charity, leave an estate to your children, and so on.

Level standards of living

Debt has made another path possible--it potentially lets you "level-out" your standard of living.  In your early years--as a student and then as an entry-level worker--you borrow money to boost your standard of living.  Then, as your income rises towards its peak, you reach a cross-over point, where you no longer have to borrow to support  your standard of living.  As your income rises still more, you have a surplus to pay off the accumulated debt.  The implication of taking this path, though, is that your standard of living doesn't rise--it jumps to a moderately high level right at the start, and then stays there for the rest of your life.

Anybody who's been reading what I've been writing will know that I think this is a terrible idea.

  • It's risky--any glitch in earning before the end of your career could send you into bankruptcy.
  • It's expensive--the interest paid on all that debt will add up to a fortune over a lifetime.
  • It's inflexible--once you incur all that debt, you're stuck working to pay it off, even if you decide the exchange (high debt for high standard of living) was a poor one.

However, I find myself in a quandary about one possible reason why it would be a bad idea:  It locks you in to a level standard of living.  Maybe that's not a bad thing.

Happy with a stable standard of living?

See, although we know that people are made temporarily happier by increases in their standard of living, even an ideal version of the old traditional "rising standard of living" path doesn't make you permanently happier with those increases--they just don't happen frequently enough.  

Maybe in the first year or two they come fast enough--first job, first apartment, first piece of furniture, first raise.  Pretty quickly, though, your standard of living settles down to long periods of stability punctuated with small increases that make you happier for only a little while.

I think that's a really good basis from which to start thinking seriously about enough.  If your standard of living can't rise fast enough to keep you permanently happier than your baseline level of happiness--if you're going to be at the baseline most of the time anyway--maybe there's no good reason to have a rising standard of living.  At least, no good reason to persist with a rising standard of living, once you're past the burst of early growth in the year that ends about the time you get your first raise.

Take control of your standard of living

Most people let their standard of living drift up as their income rises, without really giving it much thought.  I suggest being more deliberate about it than that.  

Look back over your spending from six months to a year ago and find two things:

  1. Some one-time expenses that were intended to improve your standard of living (a new car, a new TV, a new sofa)
  2. Some new recurring expenses that were intended to improve your standard of living (a phone plan with more minutes, lawn care service, a fitness-center membership)

For each of those, think about whether that purchase made you happier; if it did, think about whether it still makes you happier.  Note that this is not the same question as whether you'd be miserable if you had to go back to life without a bread machine and a weekly cleaning service.  Just like a rising standard of living makes people temporarily happy, a falling standard of living makes people temporarily unhappy.  Don't be fooled by that.  The question is, does that purchase or expense make you happier now than you were six months or a year ago?

Unless you're quite unlucky, many of your purchases will still make you happier.  I bought a bicycle in 1984 that I remain delighted with.  We got some living room furniture that gives me pleasure every day.  I get enormous satisfaction from our high-speed internet service.  There are plenty of items, though, that gave me great pleasure initially, but don't any more--a guitar and keyboard that I never play, some computer games that I've finished, some books that I bought rather than getting out of the library, a membership a sportsman's club that I scarcely use.

Because a falling standard of living makes people unhappy, raising your standard of living tends to be a one-way street--it's tough to choose to lower your standard of living.  That makes it all the more important to take control.  Don't increase your standard of living just because you can.  Be strategic about any expense that's intended to make you happier.  Do you need to raise your standard of living?  Or can you be just as happy at your current standard of living?

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Guest's picture
Tony

Excellent article and great points, Philip. I accidentally subscribed to your blog, but I'm glad I did.

Guest's picture
Pam

Great article! :)

Guest's picture
Guest

We're middle management workers (non-college grads) who've saved, worked and lived simply for the last 45 years but our standard of living is dropping fast. Maintaining a basic standard of living only works if a) your home is valuable enough to sell so you can downsize; b) your retirement investments haven't crashed just as you need them; and c) the cost of inflation isn't rising just as your best income years are gone.

Guest's picture

If you live below your means, you are able to consciously raise your standard of living as you gain more wealth.

The key is finding a balance.

Guest's picture
mk

My husband and I took a big cut in income recently, and moved at the same time. We moved for his job, and I decided to take the opportunity to return to full-time student status so I could finally finish my PhD. Unfortunately, we did this just as the housing market seriously began to slump, and we were unable to sell our home (we're now renting it to some friends).

We went from living in a fairly large house to renting a much smaller and fairly crappy apartment. We went from two cars to one. We cut our food budget. We cut our entertainment budget. We cut basically ALL our budgets.

We joked about going back to our college days, but it really did feel just like that. Except that, back then, we hadn't had a higher standard of living. At 19, just having our own apartment was exciting - who cared if the oven didn't work half the time?

It was initially a really, really hard change to make. It helped that we knew it wasn't forever, and that it was a choice we had made. But after a few months, it got easier. And now it feels totally natural. We've decided not to increase our standard of living all that much when I go back to work - most of my income will go to retirement savings, and to paying off our mortgage.

It took a fairly unique set of circumstances for us to make this change, but I'm glad we did.

Guest's picture

Thanks for this thoughtful and thought-provoking article. It struck me that I am a good deal happier than I was two years ago, before we bought our home. Sure, the property has lost value, but it's not the economics that are at issue here.

You use the term "standard of living." I more commonly use the term "quality of life." Maybe they're interchangeable to some. Your phrase though seems more strongly associated with finances, while "quality of life," to me has a more general meaning, or possibly a medical (and usually negative) overtone.

Quality of life can be enhanced by having children, developing a better relationship with a spouse, building enduring friendships, acquiring skills that are enjoyable to use, exercising, and by many simple pleasures that aren't directly vulnerable if our incomes should be reduced.

My quality of life went up when we bought our home, and it has stayed up. It's nice to care about the place I live. It's satisfying to be able to make decisions about where I live without consulting anyone else. It's rewarding to have a huge garden, and to gather the apples from the old apple tree that came with the house. These things provide me with a level of happiness every single day that had been missing previously. Maybe it's settled in to a background level of contentment, but it doesn't feel that way to me. I'm grateful to have this life, and mindful of that advantage day by day.

Your article just made me even more mindful of it. Thanks!

Guest's picture
Guest

Great point on "quality of life." Some would argue that Americans have a much lower quality of life than other countries existing on 1/10th what we make.

However, one more point...quality of life should include the ability to afford medical care. Many families I know have skipped medical care for illnesses and injuries because they simply cannot afford it.

It won't matter if universal health insurance is available to everyone if lower income families can't afford the co-pay.

As an example, I've been told I need a knee replacement. However, since the surgery will result in an approximate $2,000 co-pay and $200 for each physical therapy visit (not covered), it's not an option for us right now. Health insurance doesn't guarantee health coverage.

I hope the next administration recognizes this.

Guest's picture
My name already belongs to someone else

It's funny that you mentioned structures like house warming parties and bridal showers that are supposed to "help" with transitions. I think this rituals are outdated!

For example, most couples I know lived together before they got married, or the two spouses had their own established homes they had to combine. I think it's tacky to ask someone to shell out for multiple bridal showers and then a wedding gift when the couple has everything they need. It doesn't seem right to me.

And because more and more people are living on their own before marriage, they aren't getting the transitional help they need because there isn't a gift-giving occasion to go with it.

And all the showers and gifts doesn't make anyone the happier. It doesn't make any sense to me.

Julie Rains's picture

I had not heard of this leveling out concept until a few years ago from someone who has a nice primary residence, vacation home, and children in very expensive private schools. I had never thought of living my life that way even though it likely works for him; it's just not something that I would choose--spending can be nearly unlimited in this model.

I have seen others increase their standards of living in rather foolish ways, that is buying a new, tremendously large home after one or two good earning years or rather smartly, saving for many years, living below that person's supposed standard and then having enough in savings to support a higher level of living in the big house; or keeping the smaller house but using discretionary funds for vacations or dining out or the latest model car. I like the last model the best -- you can always postpone the European vacation but you can't postpone the mortgage payment.

Guest's picture

I think we all have seen people who have way too much money but are miserable. I think we need to have a purpose. The world is changing and many people need help. My thought is every family should have a goal of giving back whether it is financially or by doing volunteer work.

Philip Brewer's picture

I think the real underlying change that makes these events seem less relevant now than in the past is that we in western countries are so rich and stuff has gotten so cheap.  Even a poor student can afford the basics of a household (bed, chair, linens, pot, pan, some plates and glasses and tableware).

My take is that the social changes (people setting up their own household early and living together early) share the same underlying cause--people do them because they can afford to.

Guest's picture
Lucille

I think there are also thresholds where increasing your standard of living actually will make you happy but things beyond that probably won't. Moving out of the neighborhood that the police showed up at least once a week due to other people in the neighborhood firing guns, letting aggressive dogs run the neighborhood or domestic fights certainly increased our happiness and quality of life. We now live in a cookie cutter subdivision, moving up to a McCastle neighborhood would not increase our happiness or quality of life. So there are some of those steps up that matter more than others.

I also think this point doesn't get enough attention when people look at the long term quality of life.
"Durable items (bed, chair, pots and pans, TV) can be purchased once and then add to your standard of living for years to come."

So many people buy furniture at Walmart, Kmart or Target and most of it is made poorly out of particle board and laminates. Even some of the real furniture stores are selling nice looking furniture that has composite cores with some high quality plastic wood finishes that look very real. One that really shocked me was at a scratch & dent furniture warehouse. It was one of those huge heavily carved 4 post beds. It looked like high quality wood and I had seen one almost identical to it going for over $2500 at Macy's. The one at the warehouse had a chunk taken out of the headboard. This exposed the construction. It was molded particle board. All the carving was part of the molding process. It then had a very realistic looking sort of shrink wrap type laminate coating on the outside to look like wood. All of these pieces of furniture will not last a lifetime. If they last 10 years your lucky. This kind of thing has a huge negative impact on someone's long term improvement of their standard of living.

Now add that same situation to almost all of your durable goods.

Maggie Wells's picture

ing is not being able to live and work where one grew up. I just got back home from a six week visit to my homeland of southern California. I cannot afford to live comfortably or uncomfortably for that matter in the city I grew up in  and my husband (who hails from the Ocean Park neighborhood of Santa Monica) would have to make milllions to afford to live on the street he grew up on.  Should we (especially we Californians in high priced California) divorce ourselves from our geography, our families, our friends because by and large we cannot afford our collective past? What does it mean for a community or a city when no one born and raised there can live there?

Margaret Garcia-Couoh

Guest's picture
Lucille

I have been priced out of the neighborhood I grew up in also. The only upside is that now some of the neighborhoods that were too rundown or crime ridden when I was a kid are now fairly well rehabbed, have lower crime rates and services nearby.

I also looked at possibly moving back to northern CA and about died when I saw how much even a rundown shack costs there these days. I don't know how people afford to live there at all.

Guest's picture
observer

Some people are downwardly mobile, that has to suck.

Guest's picture
My name already belongs to someone else

Good point about showers and housewarming, Philip. I would say it's housewarming that's going to the wayside, but certainly not bridal showers or wedding gifts!

I wasn't exaggerating when I said that couples I know who have been living together for 5+ years will still have two or three bridal showers. While I understand that it's a rite of passage, it seems like a bit much.

When my best finally sets a date (she's been living with her fiance for almost ten years), she doesn't want a shower for that reason. They live frugally, but they have all they need. I plan to throw her one anyway... And instead of gifts ask people to make a contribution to their honeymoon. The one thing they can't afford to do is travel.

Guest's picture

My standard of living took a big hit this year when I stopped working because I became very sick. I then had to sell off many of my assets in order to afford the things I needed to buy. But now it is starting to rise again...slowly
So I am looking forward to seeing it get better every month from now on.

Guest's picture

...but more than any of the reasons, I wouldn't want a stable, credit-based standard of living because I love the feeling of earning things.

That's why those initial firsts are so special. For the first time in life (for some of us), things aren't being subsidized in any way. We're earning every bit of our success.

Of course, I'm pretty much off the "stuff" wagon and don't get that same rush from buying key items. I think the challenge from this point is to transform and get that same satisfaction from giving instead of getting.

Guest's picture
John Krumm

It's partly you sense of status among peers that determines happiness, regardless of wealth. It has long been known that societies with much less income inequality than ours, even much poorer ones, are generally much happier ones. Status in this country is often tightly tied to income, though education can make up for it a little (only a little, try being a phd homeless person for a while and see how you feel in the company of people who aren't also homeless). This kind of happiness is also connected to overall health outcomes.

Guest's picture
Suz

Fairly commical considering that my hubby and I already live at a really low standard, we're consdering downsizing even more and moving into a Christian community living situation. This would be good for us both spiritually but it's very hard to give up some of the 'nicities' that we've come to love.

On the other hand is my best friend and her husband who are in the same financial situation as us, but they can't make ends meet even though she is bringing home twice what I make every month. Simple things to cut their expenses they can't fathom. Like cuting one of their vehicles, getting rid of cable... getting cheaper cell phones...

It's all about choices and what's important to your happieness.

-Suz

Guest's picture
Moneymonk

I can raise it if I want. However we are in a position to pay the mortage, give to chariy, save and invest college funds and retirement and oh yeah have a discretionary income.

But contentment can be hard to practice sometimes

Guest's picture
Douglas Cezar

I think we have to ask ourselves where each of our desires and needs comes from. Some time of reflection will help a lot. If I earn 120k a year, why not live the same way someone that earns 60k? What a advantage I will have while investing the 60k. Of course, this have to be tough before you choose to increase your living standards.