Saturday, September 18, 2010

Of Billionaires, Rock Stars, and the Price of Happiness

Last month, we spent a few moments imagining what it would be like to be a (US dollar) billionaire, although it turns out that one of us has been thinking about it more seriously than the rest. Jumping off from that theme, we sampled the effectiveness of this online tool which supposedly gauges one's potential to be wealthy.

In case you have already forgotten, the last question in that online questionnaire goes

Who would you rather emulate? A man known for throwing extravagant soirées in his art-laden mansions around the world, or man whose idea of a wild party is playing bridge online at the home he bought for $31,500 in 1958.

Of course we all know now that the first choice pertains to Nicholas Cage, who, in a blink of an eye, managed to burn up the millions he earned over the years as a big time celebrity, and that second choice pertains to legendary billionaire and investor, Warren Buffet. According to the questionnaire, choosing Buffet's simple lifestyle will bump up your chances of becoming wealthy by a notch or two, and choosing to live Cage's rock star persona will be the surest path to financial damnation.

All this talk about riches and lifestyle got me and my friends into asking: What would you rather be, a billionaire or a "rock star" (i.e., someone who has boatloads of cash or someone who just has enough money for basic comforts and boatloads of all the other stuff like sex and rock and roll)? I know that some of you will point out that the choices aren't really mutually exclusive and that a billionaire would easily have enough money to be both, but this was a topic discussed over one or two drinks and you have to understand that the dilemma is more philosophical than economic. So if you completely understand the point of the question, what would you rather be: a billionaire or a rock star?


On a related note, last week I bumped into this TIME article about a study by one of my favorite scholars, Nobel Laureate Daniel Kahneman, and his associate Angus Deaton, on the "price of happiness." According to the study, the price of happiness for Americans would be $75,000 per year; putting it another way, with an annual income of $75,000 per year, Americans would start to think that money is not an issue anymore. Of course, the study goes on to imply that money, all 75,000 US dollars of it, is merely a necessary but insufficient condition for happiness and that, of course, there are other factors at play.

Still, $75,000 looks and sounds like a plausible and attainable figure that can serve as an initial target for any financial- or career-planning exercise. But how do we translate that into Pinoy terms? Yeah, it's easy to google "75,000 USD to PHP" and get 3.31 million pesos, but that won't do since the cost of living in the Philippines and in the US are oceans apart. To bridge that gap, we can use what The Economist calls the Big Mac Index, which reflects both foreign exchange rates and cost of living differences (measured by the price of a Big Mac). Using the latest Big Mac Index, we can compute for the equivalent "price of happiness" in the Philippines, which is roughly 2 million pesos.

Now for some perspective. A gross annual income of 2 million pesos would mean a mothly income of around 154,000 (if you consider 13th month pay). Do you know anyone earning that kind of dough in the Philippines? If this figure is accurate, can you imagine how may people are unhappy in a country where the average annual household income is 172,000 pesos or just 8.6% of the price of happiness benchmark?

Maybe it just means that $75,000, or the Big Mac-adjusted 2 million pesos, does not apply to the Philippines; maybe it simply takes way less than that to make us happy. Over the years, we've seen reports like this one and this one of how Filipinos have ranked highly in international happiness surveys, despite our admittedly miserable circumstances. But I would tend to be a bit skeptical of these results, since I do see first-hand that a great many of us are far from being economically or even socially satisfied, much less happy. So, if we turn to more extensive and structured surveys like this one, we'll see how the Philippines sits in the middle of a global sample (72nd of 146) in terms of happiness, or "satisfaction with life," as the survey eloquently defines it; we are right there but not quite, unsurprisingly falling behind our neighbors Hong Kong, Taiwan, China, Indonesia, Malaysia, Vietnam, Thailand, and Singapore.

I would tend to believe this last survey more, just as I see $75,000 or 2 million pesos per year as a believable price for happiness. The fact that Filipinos with average incomes would only be moderately satisfied with their lives, especially compared to peoples from "more developed" countries, makes sense to me, mainly because I believe that money has a lot to do with happiness, or satisfaction with life (although I would also be the first to say that that's not all there is to it).

So I guess that rock star lifestyle would have to wait until I earn my way to happiness. Again, the issue is more philosophical than economic.

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