It turns out money is the key to happiness, as long as you don’t spend it. A new study of Swedish lottery winners finds that winning the jackpot increases happiness and life satisfaction by relieving financial stress. Previous studies found the joy of winning dissipated over time, or even resulted in deteriorating health.
The link between money and happiness isn’t all that surprising—even if the research is not as definitive as you may think—but buried in the Swedish research is a surprising finding: the lottery winners did not spend much of their winnings, but invested sensibly in low-risk, low-return bonds and spent the money slowly over the rest of their lives. The life-long income boost may explain why the winners remained happy years after winning the lottery.
The Swedish winners conform to economic theory of how people should behave after receiving a financial windfall. Lifecycle finance argues that people are happiest if they smooth out income shocks over their lifetime, avoiding the trauma that comes from a sudden drop in earnings. In fact, you may be better off never getting rich if you are destined to lose it all one day. Behavioral research, however, suggests people tend not to behave this way, so they discount the future too much and regret it later.
It is not clear why the Swedes seem so uniquely sensible when it comes to saving. Evidence from other countries suggests that people are generally more impulsive. A study on lottery winners in Florida (pdf) found that big winners were more likely to file for bankruptcy after three years than people who won more modest sums.
The paper does not comment on what makes Swedes so patient with their lottery winnings. Whatever is happening, maybe better financial literacy training—or something in the water—should be studied and applied elsewhere. In the meantime, if you end up winning the lottery but lack Swedish financial discipline, make sure to take the annuity option instead of a lump sum. You’ll be happy you did.