The statistical secret to happiness

What on earth do the U-bend & the Spending Wave have to do with happiness?

First the U-bend.

The U-bend was the focus of a fantastic article in The Economist last year. The main thrust of this piece was that based on the results of a number of different studies people are least happy in their 40s and early 50s. They reach a nadir at a global average of 46.

The picture these studies paint for us is of initial cheer when we start out on adult life but things going downhill from youth to middle age until they reach a nadir commonly known as the mid-life crisis. However as people move towards old age and lose things they treasure—vitality, mental sharpness and looks—they also gain what people spend their lives pursuing: happiness.

The interesting thing about the U-bend “phenomenon” is that it appears all over the world:

  • David Blanchflower, professor of economics at Dartmouth College, and Mr Oswald looked at the figures for 72 countries. The nadir varies among countries—Ukrainians, at the top of the range, are at their most miserable at 62, and Swiss, at the bottom, at 35—but in the great majority of countries people are at their unhappiest in their 40s and early 50s. The global average is 46.
  • Arthur Stone, Joseph Schwartz and Joan Broderick of Stony Brook University, and Angus Deaton of Princeton, break well-being down into positive and negative feelings and looked at how the experience of those emotions varies through life in another paper. Enjoyment and happiness dip in middle age, then pick up; stress rises during the early 20s, then falls sharply; worry peaks in middle age, and falls sharply thereafter; anger declines throughout life; sadness rises slightly in middle age, and falls thereafter.

The U Bend

  • the British Labour Force Survey asks people whether they are depressed, the U-bend becomes an arc, peaking at 46.

So 46 seems to be the accursed number. Or is it? Maybe it should be 47.5?

What makes 46 an interesting number for me is that it seems to correspond almost exactly with another economic theory that comes from American author Harry Dent, the Spending Wave.

Dent has written a number of books over the years. The only one I’ve read is tortuously titled The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History. The book is worth a read to understand how Dent looks at predicting macroeconomic trends. Which is essentially by looking closely at a country’s demographic landscape.

Dent’s theory is that people move through predictable stages in their lives, including education, marriage, and family formation. On average, people peak in their consumer spending – and thus their peak contribution to the economy – at the age range of 45-49.

Australia Spending WaveDent writes that:

“Much like the average life expectancies that life insurance actuaries have used for decades to predict the future and bet trillions of dollars…the average family or household in the US (and similarly in most developed countries) peaks in spending between the ages of 46 and 50, or an average of 48.

As new generations move into their peak earning, spending and productivity years, the economy booms on about a 48-year lag. This creates the greatest economic indicator in history – the Spending Wave – which projects economic booms and busts, including stock market cycles, five decades into the future.”

Dent asserts that our peak in spending comes years after our largest home purchase (between the ages of 37 & 42). We want to improve our homes through furnishings and pools and buy more cars (kids hitting driving age) and better ones – and many of us need to get our kids into university and support them there and so on.

So the peak in spending for the average family finally occurs between 46 and 50. The turning point in household spending comes for the economy after we reach our late 40s in age, at which point on average we spend less for the rest of our lives. Its not that we live less well, but that we don’t need a bigger house, we don’t need to support the kids and we don’t drive our cars as much. At this point the savings cycle kicks in when we save at the highest rate while we still have higher incomes and lower expenses from the kids leaving the nest. Our average net worth peaks around 64, just after we retire.

So Dent uses these insights as a long-term economic forecasting tool to assess the health of economies by moving forward the birth index 47.5 years.

You can see this pattern in ABS stats too. You can also see a nice inverse U-bend curve…

Household income by age group

So can we learn from these theories? Don’t have kids? Don’t celebrate your 46th birthday? Maybe. But hopefully awareness and perspective can help us avoid being a statistic. Perhaps being mindful of not being too materialistic and being subsumed by affluenza (another book that is definitely worth a read) might help too…

And if the weight of consumerism and financial pressure is fundamental in making us the most unhappy we will ever be throughout our lives during our late 40s, perhaps approaching our lives and investment choices in an open-minded, creative and emotionally and economically sustainable way can help to ensure we make our u-bends as shallow, quick  and painless as possible.

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