Financial understanding matters more than income for wellbeing

Summarised from 2 outlets · Updated 23 Oct, 16:20 · Archive

Research shows knowing your finances affects life satisfaction more than earning more money.

Research by Klarna has found that understanding finances can be as important to wellbeing as a large paycheck. The study, published as The Clarity Effect and conducted by behavioural scientists including Professor Paul Dolan of the London School of Economics and Professor Micael Dahlen of the Stockholm School of Economics, found that predictable income was more strongly associated with life satisfaction than earnings alone. Being able to cover an unexpected bill was roughly twice as strongly linked to wellbeing as income.

Participants took part in experiments where their actual financial circumstances remained unchanged but the information available to them varied. Despite identical circumstances, those who knew more about their money looked forward to future plans more, felt more in control and made fewer budgeting mistakes. In one experiment, people given a budgeting tool while planning a holiday felt more excited about their trip and imagined it more vividly. When asked to picture their holiday afterwards, those without the tool were almost four times as likely to think about money, with 11% doing so compared to 3% of those with the tool.

In another experiment, people awaiting a car repair bill felt more in control when told it would cost £200 than when given a range of £100 to £300, despite the expected cost being identical. The findings suggest that happiness may depend not just on how much money people have, but on how clearly they understand and manage it.

How it is being reported

• The secret to financial happiness - and it’s not the size of your paycheckDespite having identical circumstances, people who knew more about their money looked forward to future plans more, felt more in control and made fewer budgeting mistakesThe Mirror · 23 Oct, 16:09
• The secret to financial happiness - and it’s not the size of your paycheckProfessor Paul Dolan of the London School of Economics and Political Science (LSE)Daily Express · 23 Oct, 15:43

In this story: Klarna · London School of Economics and Political Science · Paul Dolan · Micael Dahlen · Stockholm School of Economics

This summary was written by AI from the headlines and standfirsts above, and states as fact only what at least two outlets report. How we use AI · Report a problem