Time Value of Happiness
Is happiness today worth more than happiness tomorrow?
The time value of money suggests that money today is worth more than money tomorrow. If you invest the one dollar you have today, you end up with more than one dollar tomorrow.
In order to properly compare present money with future money, you must “discount” the latter using a rate that takes into account this opportunity cost.
The discount rate reflects uncertainty. A stable investment, such as an energy supplier, requires a low discount rate. You know that the demand for energy will remain stable. You are willing to pay more today for the future cash. On the other hand, a risky investment, such as a new startup, requires a high discount rate. You feel unsure that you will make money from this investment. You are willing to pay less for the future cash.
Can this logic also apply to happiness? All things equal, is happiness today worth more than happiness tomorrow?
Studies show that delayed gratification leads to educational and vocational success. Medical students spend their 20s completing an undergraduate degree, medical school, and residency program while racking up hundreds of thousands of dollars in debt. They’re not stupid or irrational. They know that they’ll receive a payoff at the end: a prestigious, respected, high paid job that helps people. A 10-14 year commitment guarantees a multiple decade long reward.
If you know you want the things that becoming a doctor gives you, it seems like a solid investment.
What if the average lifespan for an American was 46 years, instead of 78 years? Let’s say your adult life starts when you turn 18. You spend 14 years becoming a doctor. You’re 32. You spend another 14 years enjoying the benefits of becoming a doctor. You’re 46. Would it still be a worthwhile investment?
We tell children to work hard in school because the payoff is worth it. The vast majority of kids have to attend school anyway. An extra hour of studying each night would mean a better GPA and SAT score, a better chance at attending a good college, and a better shot at attaining a good job1. By contrast, you can spend ages 0-18 having as much “fun”2 as possible, but pay for it the rest of your life. The payoff for working hard as a kid is many times what you put in.3 But what if the payout was the same as what you put in?
All else equal, is one ounce of happiness as an adult more valuable than one ounce of happiness as a kid?
Not to be morbid, but I think about death a lot. Probably because the pandemic has caused so much of it.
I think about people who spent their entire lives saving up for retirement, but then died before they could enjoy their fortunes.
What are the chances that I die tomorrow? And how does that change my calculus of what I should do today?
I’ve heard that people tend to live differently after near-death experiences. They start to speak more honestly, act more impulsively, and think more deeply about what matters to them. That makes sense. Confronted with their own mortality, they feel the urgency of their existence. They know that if they don’t seize today, then today will turn into tomorrow, and tomorrow will eventually turn into nothing.
Growing up, my immigrant parents warned me against copying the spending habits of those “lavish Americans”. They told me the importance of saving money and planning for the future. I never thought my parents practiced frugality to the extreme, but I did meet some families who did. Even with an income of $100,000, some would refuse to buy eyeglasses or see the dentist.
I believe you can strike a balance. It’s important to save early. You never know what can happen in the future. At the same time, I allow myself to enjoy small luxuries. When I need a pick-me-up, I walk a few blocks to Ladurée, the high-end French pastry shop. I buy myself a box of six macarons for $20.4 They come in a rectangular pastel gift box with tissue paper peeking out from the sides, fastened by an elegantly tied ribbon. I like that it resembles the packaging for a fancy fountain pen.
Happiness Vs. Money
I treat the time value of money as a thought experiment more than anything else. Money and happiness are by nature different. Money can be easily defined and quantified. Happiness cannot.
The payoff for medical school can be more easily measured in dollars than in happiness. It’s a good investment in terms of dollars. In terms of happiness, it’s not as clear. Not everyone who becomes a doctor is happy. Not every 20-something-year-old in medical school or residency is unhappy.
I find it useful to think about the time value of happiness because I know many people, like myself, stress about the future so much that it eats into the present. I frequently worry about the next two years of my life. But I also spent the last year of my life worrying about this year of my life. Eventually the algorithm simplifies to just this: worry.
As the old adage goes, there’s no use in worrying. Tomorrow contains no guarantees. All there is to do is stop and enjoy the macarons.
Still trying to figure out what this entails.
Not saying that learning isn’t fun! But as a teacher, I’ve noticed most kids would rather play Roblox than practice fractions.
This is not always true. Some people are in situations that make it exceptionally difficult to succeed, no matter how hard they work. But you see the point I’m trying to make.
On a normal day I eat the Trader Joe’s frozen macarons. They’re decent, especially considering they’re $5 for a box of 12.