A study just released by the British insurer Aviva suggests that happiness is more influenced by a sense of financial control than by the amount someone earns. In addition, people with higher self-esteem are more likely to feel in control of their money and take action to promote their financial well-being.

Aviva interviewed more than 2,200 Brits in June and a separate sample of roughly 2,000 last October. Two-thirds of respondents reported high self-esteem. Of that group:

-85 percent felt they were in control of their finances;

-50 percent said they were happy about their financial situation;

-68 percent said they are good at planning their day-to-day finances;

-and 62 percent have set themselves clear financial goals for the long term.

Now contrast that with the 15 percent reporting low self-esteem:

-70 percent of that group don’t feel in control of their finances;

-0 percent reported being happy about their money;

-76 percent fail to plan for the long term;

-69 percent worry about managing their finances on a daily basis;

-and 42 percent say they fail to stick to a budget.

Aviva says the relationship between self-esteem, happiness and a sense of financial control is largely divorced from how much money people actually make. The survey found more people earning over £50,000 have below-average self esteem (22 percent) than high self esteem (12 percent). Moverover, good health was seen as twice as important (85 percent) as earning more money (42 percent).

Princeton researcher Talya Miron-Shatz has found a similar pattern among women who feel financially secure. In her study, women with incomes in the 75th percentile and above reported more life satisfaction than those in the bottom 25th percentile. But  women who reported feeling secure (no matter what their income level) enjoyed the boost in happiness as those with high incomes.

Although Aviva suggests that “Financial Planning + Control = Improved Self-Esteem and Happiness” (it is an insurance company with products to sell, after all) it seems to me there’s a chicken-and-egg problem here: Does financial control improve happiness or do  happy people tend to plan out their finances in more detail, thus giving them a better handle on them?

I tend to think it’s the latter — when you’re happy and optimistic, and have high self-esteem born of genuine accomplishments, you feel good about the future, and you make plans. Big plans — buying a home, world travel, education — usually have a financial component. (Although I do find that people who have worked their way out of debt or found the discipline and tools to live within their means get a happiness boost from achieving financial peace of mind.)

This is similar to a recent study I covered in my Yahoo!Finance column that found happy people have more meaningful conversations. Are they happier because they have meaningful conversations, or do they seek out substantive discussions because they’re happy? 

Did you gain a sense of financial control at some point in your life and found it boosted your happiness? Or do you think happy people are better financial planners?

In my latest Yahoo!Finance column I interviewed Sheena Iyengar, Columbia business school professor and author of The Art of Choosing, which looks at how people can make better choices. I asked her why she thought consumers make poor financial choices.

“Money is supposed to be meant for exchange but it’s come to be much more than that,” Iyengar says. “There is so much more baggage associated with it; we judge people based on how much or how little they have, or how they use it.

“We expect people to know how to be organized about its distribution in their lives but we don’t give people any training,” she continues. “On top of that, money is no longer tactile and concrete. It’s become something quite abstract and that becomes harder for us to see and experience its growth and shrinkage. When you put something on a credit card it feels very different than using cash. I think all of those things are involved when you decide how to spend your money.”

Another problem is the sheer number of choices. In a study for Vanguard, Iyengar found that the more investment choices a company 401(k) plan offered, the lower the participation rate among employees. Participation rates fell from a high of 75 percent for the smallest plans, which had four funds, to 70 percent for plans with 12 or more funds. When the number reached 30, participation began to slide again – to a low of about 60 percent for plans with 59 funds.

“It’s easy to sign up on the spot when you have only five choices, but when you have 50 it seems reasonable to mull things over for a while,” Iyengar writes. “Unfortunately, as you keep delaying the decision, and days turn into weeks, and weeks into months, you might forget your 401(k) altogether.”

If this is your situation, try the following simple steps:

1) Ballpark your retirement needs using this calculator from ESPlanner.com, a tool created by Boston University economist Laurence Kotlikoff. (It takes about a half hour to complete.) Don’t balk at doing the exercise because you’re concerned you can’t achieve the goal. Darthmouth economist Anna Maria Lusardi has found people who make an attempt to estimate their retirement savings goal ultimately save more than those who don’t – so the effort is worth your while.

2) Try to gauge your tolerance for risk using a tool like this one, from Rutgers University.

3) Bring the results of the two steps above, and the list of your 401(k) investment options, to a fee-only financial planner who charges by the hour to help you choose funds. You can find one at garrettplanningnetwork.com or napfa.org. Budget $100 to $200 for the effort.

4) Once you know how you’d like to allocate your savings, set a timetable and a specific date for executing on the planner’s suggestions so you don’t let it slide. Contribute at least enough of your salary to get any match the company may offer. (I personally max out my retirement contributions.) If you can’t afford the max, make a commitment to increase your contribution by 1 percent every time you get a raise.

Happy Thursday! I love Thursdays for a lot of reasons: I enjoy teaching my class at Seton Hall, it feels like I’m sliding into the weekend home plate, and they serve pizza at school so I don’t have to make my kids’ lunches. One less rush in the morning rush.

I have something totally funky going on with the comments function on this blog. Rest assured, experts who understand this stuff are looking into it. In the meantime, I’m receiving some really thoughtful comments and questions from readers by email, so I thought I’d give them their own post. Sorry about the comments thing – while we fix it, you can send your feedback directly to me at laura at laurarowley dot com. 

From Ruth, on the “Move Your Money Campaign” post: My husband and I have been moving our money out of big banks since 2007.  Before we married we had accounts with Wachovia, BofA, and Umbrella. The BofA account went first due to lack of local ATMs and bank locations. Then we learned that Wachovia was being taken over by Wells Fargo. We each had Wells Fargo accounts during college and the bank was extremely unhelpful with a tendency to place fees on anything. We closed that account immediately. As for Umbrella, its brick and mortar bank failed recently and was taken over by the FDIC.  So now we are in the process of closing that account.

All of this money has been transferred into a Morton Community Bank account. The bank has limited branch offices, just one per city generally, but offers 2% on checking with full reimbursement of any ATM fees. The online banking isn’t as slick as BofA, but it works and there is always a person on the other end of the line if you have trouble (like locking yourself out of your account). The bank appears to be thriving as it has expanded recently by acquiring other local FDIC closed banks.

We also have an account at the local credit union because it offered a great interest rate on refinances. We lowered our monthly payment by $700. That savings made moving our mortgage from Countrywide well worth while.

Nothing in our world should ever be “too big to fail.”  If something has grown so large that it threatens the existence of itself and/or others, then it is time to cut it down for survival reasons.  We all know what happened to the dinosaurs when their environment changed. The big banks are dinosaurs and our economic environment is changing. We’re better off not allowing them to take our money with them.  Regulation would be the best thing for the banks, but I doubt that it will happen. Congress likes to keep those individuals who have the majority of “cash on hand” happy.

Hey Ruth: Thanks for the comment. I moved my checking account too, from a national bank to a local one that pays 3.26% interest on checking and reimburses ATM fees if you jump through some hoops (10 debits, direct deposits, statements by email, etc.) I had the same experience — the online banking is functional but definitely not as slick as the big banks — but I am always able to get a real person on the phone to help. Enjoy the interest!

From Joe, on the post “Do Rich People Get the Money & Happiness Connection?“: I read with interest your column on whether or not rich people get the money and happiness connection.  I’m not sure they can.  Of late I’ve given quite a bit of thought to what will define happiness for me, next in my life.  I tend to think of things I would like to do, things that I enjoy and also how I will earn a living.  Like many others I’ve tried to figure out if I can make the two align.  It wasn’t until I read your blog today that I was reminded that money doesn’t have to be the key part of that equation.

I was child number 6 of 7 and grew up in very modest surroundings.  In retrospect we didn’t have much, but most of the people around us didn’t, so I wasn’t that aware of it until I went to school.  I have early memories of not being able to afford to do the things other kids were doing as early as fourth of fifth grade.  By high school I was keenly aware of it.  I took out loans to go to a private college where the income gap was even more noticeable.  I always worked.  But I had an awful lot of fun and made some of the best friends in my life there.

I’ve been very fortunate and now earn a comfortable living.  I don’t consider myself rich and still don’t indulge in many of the luxuries my peers do.  But somewhere along the line making money became very important to me and perhaps more an end in itself than I’d like to admit.  Perhaps I’ve started to see living a lifestyle as synonymous with my happiness, even though I have life experience to tell me it isn”t so.

Anyway, I’ve rambled on for a few paragraphs here and am not sure I’ve arrived at a point.  Just wanted to drop a note to say thanks for your post, it’s given me food for thought.

Hey Joe:  I have definitely found myself focused more on making money as I get older if only because it can be so helpful in facilitating goals like nurturing your kids (i.e., saving for college). The problem is if I think too much about money, I start to do things like take on too much work so I can save more for college — which ultimately results in my spending less time with my kids (and violates the underlying value I was trying to achieve, which was nurturing my kids).  I have to occasionally step back and think about my larger intentions in my work, and make sure they still align with my values and the sense of purpose for my life.  Thanks for your note. I appreciate your perspective.

I write this post with a heavy heart. A few months ago I wrote a Yahoo!Finance column about a couple, Patrick and Suzy, who had been married three years and had just bought a home in Seattle. They decided to wait a year or two before having children while they paid down debt and built up their savings. Last week, while the couple walked their dog in the park, Patrick was killed by a falling tree limb. He was 32.

Patrick felt strongly about preparing fi- nancially for parenthood, while Suzy was ready to get started. When he asked my opinion, I agreed with Patrick that it made sense to wait: They needed both of their salaries to cover the bills, carried some heavy student loan obligations and didn’t know how they would afford daycare. Maybe they could have worked it out. Now we’ll never know.

I am wondering if I led them astray. Patrick was firm in his thinking; a friend reassures me that I was just a “data point” on the couple’s decision-making spectrum. But what if I had suggested they go for it, start a family and figure out the money later? What if I had advised them simply to have faith in themselves and in each other, to be flexible and open to major adjustments that might occur down the road, and jump in with both feet?

After all, my own parents took that approach. Good Irish Catholics, they had eleven children; I was the tenth. It was a different world, of course. My mother stayed home and never had outside help. (She went back to work part-time when the youngest was in first grade.) She made our clothes for a number of years. We thought nothing about sleeping three to a room. My parents never spent a dime on car seats; we all squashed into a station wagon, my brother and I squabbling in the space between the middle and back seats.

If we did “enrichment” it was a sport or activity at school, and it was free. There were no summer camps; we just took off on our bikes in the morning and came home when the streetlights came on. We drove to Michigan exactly twice on vacation when I was a kid. For years we had just one television, with a dozen channels. We spent a lot of Sundays at museums and in forest preserves, playing games and jumping in leaves.

And it worked out, because both my parents labored around the clock for decades, and prayed mightily for divine support. They had no “me” time scheduled into their calendars, and when we were small, their couple time typically involved sitting in the living room after we were all in bed, my dad rubbing my mom’s feet. In the dark, under the covers, we could hear them laughing. They were deeply committed to their child-rearing enterprise, regarding it as their purpose in life. Married 49 years with nary a public quarrel, their faith made all the difference. (My father died in my mother’s arms a week before their 50th wedding anniversary.)

Money doesn’t buy happiness, but it creates lots of options. A lot of parents, myself included, use money to try to get things right with our kids – the right safety devices, the right neighborhood and schools, the right tutoring and enrichment, the right 529 savings plans, the right colleges — so we can launch them on the right path. On the other hand, money should never replace creativity or commitment. My parents had both in spades.

Maybe money is something you should watch out of the corner of your eye when you’re contemplating decisions about life and your purpose on the planet — rather than letting it hover front and center, like a roadblock. Maybe when your heart’s desire is involved, a certain leap of faith is called for, because things can work out. Maybe it wouldn’t have made a difference, but I wish I had told Patrick that when I had the chance.

The Wall Street Journal today reports on a study by economists that found that a simple reminder by cellphone encouraged people to save money, boosting savings rates by 6 percent.

The researchers, working with several banks the Philippines, Peru and Bolivia, randomly selected people who had recently opened savings accounts. Some were sent letters, others text messages, urging them to save, in both positive and negative terms. One message in the Philippines warned: “If you don’t frequently deposit into the Gihandom Savings account, your dream will not come true.” 

What I found most intriguing about the study was an upbeat or scolding tone didn’t make a difference; what did was reminding the account holder of their goals, as well as the incentives offered by the bank for making consistent deposits.

In a recent Yahoo!Finance column, I covered research that suggests setting specific goals and then man- aging background cues to support those goals makes a difference in both academic and financial achievement. Prom- inent reminders can focus attention and help people stay on the path to their goals.

Concrete goals — with real price tags and real time frames — are critically important. Dartmouth economist Annamaria Lusardi has found that people who at least try to plan for retirement ultimately end up with more money than those who don’t make a conscious effort.

A few tips: Put a list of your financial goals where you can’t miss them — on the fridge or on the wall above your desk. Put a piece of masking tape on your debit or credit card and write your goals on it to prevent thoughtless spending.  Recruit like-minded friends to support you in your efforts. And most importantly, automate your goals, so the money is swept electronically from your checking account into savings accounts (or into your 401(k) before you receive your paycheck).

My column today on Yahoo!Finance discusses how to manage volatile income. Long-time readers know I often write from direct experience, and that’s what inspired the story. My spouse and I both work for ourseives, and our household income has fluctuated by as much as 100% from year to year.

Everywhere I look I see households experiencing similar income fluctuations: Someone is laid off, or had their hours cut; someone has to stay home with a sick child or a sick parent; someone ends up unemployed for years because of a structural change in their industry — manufacturing, IT, journalism — and goes from full-time employee to full-time contractor for the same company (with no benefits), or cobbles together a living as a consultant or freelancer. As one reader noted: “From what I see, the line between contract employee and direct employee is blurring more and more.”

I interviewed financial planner Mike Masiello of Rochester, New York, for the story. “What we’re seeing is a ton of very talented electri- cal, mechanical and indus- trial engineers who have (lost jobs) as the manufacturing base dwindles,” he says.  ”The difficulty is there really aren’t positions. One guy I knew had two master’s degrees in mechanical and electrical engineering, and was competing for a job against a guy who has two PhDs.”

People with fluctuating incomes have to behave like the biblical Joseph, Masiello says: Store the seven years of bumper crops so you can get through seven years of famine. In good years, overfund retirement savings, and build four to eight months of cash reserves.  Don’t tap home equity, build up credit card debt or cash our retirement savings.

Those are the behaviors of his wealthy clients. “The millionaire-next-doors,” Masiello says (referring to the famous book by Thomas Stanley and William Danko), “are joys to have as clients because they get it. They are not into conspicuous consumption. They have a structured long-term strategy and long-term goals; they know where they are going and have a plan to get there.”

I am a frugal, no-debt kind of person, so I find the lean times fairly easy to manage. (For instance, I just successfully sold an old coffee table on Craigslist. This is not actually a lean time, I just got sick of looking at the thing.) The problem is that while I’m harvesting the bumper crops, I feel richer, and begin to imagine the possibilities — a kitchen renovation, a trip to Paris. The hedonic treadmill is not easily avoided. Managing the psychology around the money is just as critical as managing the money itself.

ah, my dream kitchen

 
I especially liked the advice of Matt Wallert of Thrive.  You need to physically separate the account that your paychecks go into from the account that you use to pay the bills. That way the paychecks can accumulate like water in a reservoir, and you shift over a pre-determined amount each month to cover your expenses. (See the story for more).

Do you have any secrets or insights into managing a fluctuating income? I’d love to hear them.

Bernard Madoff’s attorney said today he will not appeal his 150-year prison sentence. The Wall Street Journal had a moving piece last week called “Downsized Lives and Shattered Dreams” that profiled some of Madoff’s victims.

I was inspired by the story of Jesse Cohen, who lives in Summit, NJ, a few miles from me. He’s a 50-year-old former bond trader who built a successful business, sold it and gave the money to Madoff to invest. He lost it all, and his parents lost their savings as well. Cohen, the story said, recently took a math exam to apply for a university program that turns former finance professionals into math teachers in three months. He past the test but is still looking for a position.

In other words, he has picked himself up, dusted himself off, found a new direction, and is pursuing it vigorously.  He’s focused on how he will overcome a horrific situation over which he had no control.

In today’s Yahoo!Finance column, I interviewed Daryl Conner, an organizational development consultant who has been studying change for 35 years. He finds that people who successfully overcome negative situations and move gracefully through transitions have a number of character traits and behaviors in common.

As he writes in his book Managing at the Speed of Change:
“Assimilation is the process we use to adjust to the positive or negative implications of a major shift in our expectations. Assimilating is costly – reduced intellectual energy, increased psychological stress, and diminished physical health and stamina. Resilient people have learned how to increase the number of their assimilation points and how to stay within their personal assimilation budget.” Click here to read my interview with Conner find out more about the strategies of resilient people.

Meanwhile, if you needed yet another good reason to pay off your credit cards in full, see today’s Wall Street Journal (sub. may be required.) Bank of America and J.P. Morgan Chase have notified a number of its customers that it will now tie their credit card interest rates are no longer fixed and will be a variable rate tied to the prime rate. Read the story here. Personally, I’m still get 0% rate offers in my mailbox. Has your credit card company changed the terms of your agreement? Comment here or email me at laura at laurarowley.com.

Today’s Yahoo!Finance column looks at the financial challenges that face prospective parents. I interviewed a couple from Seattle, Patrick and Suzy, who are doing all the right things with their money but still feel overwhelmed by the financial issues related to having a child.

One of the biggest challenges is that they bought a home near a city they love, but one that’s thousands of miles from their famillies. Because of the expense, they both have to work full time, and yet they lack the support network extended family can provide when the kids come along.

Their story resonated with me, because I faced similar questions about compromise when we started our family. Like them, I am originally from the Midwest and fell in love with the vitality and creativity of the best city in the world (New York). It presented wonderful career and cultural opportunities and still does. We are an hour from the mountains and an hour from the ocean, 35 minutes from Broadway shows and the best museums in the world.

But back when I started having kids, I thought seriously about moving to Chicago, even asked my boss about a possible transfer. Our cost of living is significantly higher here than in the Midwest, which requires us to work harder to afford those museums and Broadway shows (and property taxes) — which ultimately gives us less time with our kids. (Although I work mainly from a home office, which helps.) I would love my girls to have the same relationship with my mother that their cousins in Chicago do, but that’s impossible when you only see each other a few times a year. They do, thankfully, have my husband’s family nearby.

But that’s life — it demands compromises. Would Patrick and Suzy be happier if they moved back to the Midwest, where they could afford a better lifestyle and be close to family when they have their kids — and give up the city and friends that make them happy? Should someone make career satisfaction a higher priority — even if it means moving far away from extended family? Or should you settle for a less satisfying career to sustain closer family ties? I’d love to hear your thoughts and experiences. You can comment here or email me at laura at laurarowley.com.

A million users have signed up for Mint.com, the online money management tool, since its launch 18 months ago. The company unveiled a new feature – Financial Fitness – at the Finovate conference in San Francisco today.

First a quick overview: Mint users register anonymously, and then add login information for bank accounts, credit cards, etc. Mint automatically tracks and classifies spending in specific categories; sends email alerts and bill reminders to help avoid bank fees and overdraft charges; and suggests financial products and services to help save money.

The new feature takes financial tracking to a new level, giving users various challenges in five categories, and explaining why and how they should address the task. Successful behavior is rewarded with a higher fitness score. Categories include spending less than you earn; knowing your credit score; using credit and debt wisely; investing; and preparing for the unexpected. For instance, Mint can track whether the user has paid down credit card balances and stayed within their credit limit, and they accumulate points for smart money behavior.

The feature explains “why is this important task and exactly how — with a series of tools and resources — to perform that,” says CEO Aaron Patzer. “It shows how many times in a row you hit your budget, or saved or avoided bank fees, and when you’re 80 percent financial fit you get a trophy. If you hit 100 percent for six months you’re a financial guru. It (gives users) positive psychological feedback, it almost makes finances game-like.” Mint studied the point systems of the Wi Fit and Warcraft when developing the new feature.

Do you use any strategies that make money management feel more like a game? You can comment here or email me at laura at laurarowley.com.

Self-made millionaire and CNBC host Donny Deutsch mentions some of my financing tips for entrepreneurs in his new book, “The Big Idea: How to Make Your Enterpreneurial Dreams Come True, from the Aha Moment to Your First Million.” I appeared on the Big Idea around this time last year; Donny is a smart, charismatic person, and he offers plenty of inspiration here for entrepreneurs struggling in this unprecedent economy.  

The Big Idea book features profiles of folks who’ve appeared on the program — and I say “folks”, because that’s one of the things I loved about the program (currently on hiatus), it offered a platform for everyday people who discovered a brilliant idea and had the moxie to execute on it. When I was on the program, for instance, one of the guests was Kaile Warren Jr., a Maine contractor who went from being homeless in 1996 to founding the handyman franchise Rent-A-Husband, which had $13 million in sales in 2007.  (Obviously Deutsch also interviews big-name CEOs, but I love the stories from the little guys.)

The book provides both the stories and practical tips and insights on what it takes to create a successful business. Deutsch did that himself on Madison Avenue, turning a small ad agency into one of the nation’s top ten firms, with $2.8 billion in revenue.

For a recap of my tips on the show, click here.