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Is Money the Secret to Happiness?

"Money, money, money" Is it really a rich man's world?

Can money buy happiness?

When I was a tween, I loved playing a board game called Careers, in which players had to choose a target goal based on set amounts of money, fame, or happiness. Implicit in this choice  is the idea that we can have either more money or more happiness, but not both. This theory suggests that higher-paying jobs may be more stressful, require more travel or relocation, and take time away from family, thereby depleting our happiness quotient. Most religions also teach us that the key to happiness lies in appreciating what we have and helping others, rather than in trying to elevate our own status and possessions. On the other hand, if you did an informal poll of your neighbors, you’d probably find most  believe that if they had a lot more money, they would be a whole lot happier. Can money really buy us happiness?

 To answer this question, I looked at recent large research studies conducted by The Gallup Organization and researchers at Princeton and University of British Columbia, as well as experimental studies manipulating what people were asked to do with ‘found” money to shed light on the money-happiness link. These studies looked at the money-happiness link from different angles, suggesting the answer depends on how you frame the question.

 It’s Better to Live in a Wealthy Country than a Poor One

 The Gallup Organization asked thousands of people in 156 countries to rate their quality of life on a 0-10 scale, with higher scores indicating better life quality. The top 5 nations were all relatively wealthy, peaceful, liberal countries in which citizens had access to healthcare, family time, and education. Specifically, Denmark, Finland, Norway, The Netherlands, and Canada were the happiest. The United States, the world’s wealthiest country, ranked 11th highest. The most unhappy countries were all poor African nations beset by food scarcity, hunger, corruption, and, often, political instability, crime and violence. Clearly, without money to meet basic needs for food, shelter, health, and security, people become downtrodden and unable to thrive.

 More Money Makes People Happier – But There's a Limit

 A 2008 international study conducted by University of Pennsylvania researchers showed that people with higher annual incomes reported more happiness, even in rich countries. Similarly, earlier studies of lottery winners seemed to indicate they were not any happier years later, but more recent studies do show an increase in long-term happiness after winning the lottery. While some relationships may suffer, increased wealth creates a multitude of new opportunities.

 Having more money can cushion the effect of life stresses and transitions, giving people more options and resources. Money can pay for childcare, therapy, medications, or vacations to help people cope. Also, without resources, an unexpected event such as an injury, serious illness, or unemployment can condemn a family to poverty and put excessive stress on relationships. Worry about basic survival can substantially interfere with people’s ability to enjoy life and connect empathically with others.

 A 2010 study of 450,000 Americans, by Nobel prize-winning scientist Daniel Kahneman and colleagues at Princeton University, found just such an effect. Comparing people who experienced similar events, there was a substantial benefit to having a higher income. Among divorced people, about half of those earning less than $1,000.00 a month reported feeling sad or stressed the previous day, compared to only less than a quarter of those earning more than $3,000.00. But, when annual income reached $75,000, this effect disappeared. Once people reached this level of income, sufficient to meet basic needs (except if you happen to live in Marin county, like I do), more income did not make people any happier or less stressed. Rather, individual personality factors and life circumstances were the major factors determining happiness.

Money doesn't buy happiness
What You Do With the Money Matters

 Research studies show that spending money on experiences, such as family vacations, educational courses, or psychotherapy provides more happiness “bang for the buck” than spending money on possessions. That is because much of the pleasure of possessions seems to be in acquiring them. Once we have them, we adjust our expectations and begin to take them for granted. We start to crave the next big thing that we don’t yet have, a phenomenon that manufacturers exploit by bringing out new models all the time. Researchers at the University of British Columbia found that, after receiving an unexpected windfall, those who put the money in the bank and spent it cautiously only for special things, or those instructed to give the money away to a deserving person were happier later on than those whowere told to spend it on themselves. By depriving ourselves in between purchases, we get more satisfaction when we do buy something. If we shop whenever we feel like it, the satisfaction from each individual purchase seems to diminish (kind of like the 20th bite of chocolate, compared to the first)..

 Relative Wealth May Be More Important Than Absolute

 It also makes a difference what we earn, compared to other people like us. Being the poorest person in a wealthy neighborhood may lead to feeling deprived and worse off than one’s peers. We may enviously look over the fence at our neighbor’s big swimming pool and wonder why we can't afford one. The richest person in a less prestigious neighborhood, on the other hand, benefits from relative status and privilege. Imagine being the kid who has the big swimming pool! A study of 12,000 British adults by Boyce and Moore (2010) found that the higher a person’s income was, relative to other people of the same age group, or living in the same neighborhood, the happier she was.

Is money the secret to happiness?

Money Does Not Make As Much Difference as We Think

 When researchers asked people earning $25,000 how much happier they would be if they earned $55,000, most people said their happiness would more than double. However, when actual happiness scores were compared, those earning $55,000 were only about 10 per cent happier. So, money does make you happier, but mostly only a little. However, we tend to overestimate the impact of more money on our lives, perhaps leading us to make decisions that are not in our best interests. In some cases, it may be better to pass up the promotion that requires an 80-hour work week, constant trael, or relocation. In the Gallup study, more than two-thirds of Americans were happy, regardless of income level.

 Final Thoughts

 Although money does buy happiness, it is not the only ingredient. Money may make us smug and materialistic, leading us to miss out on life’s simple pleasures and not fully appreciate the gifts of family or nature. However, money spent on helping the people we care about, or that used as a savings buffer against unexpected life crises may be money well spent. Money can help our kids afford a decent higher education, provide us with access to healthcare as we age, and help us care for elderly parents. It can also provide us with the means to retire and to replenish ourselves during times of stress. These factors need to be weighed against the opportunity costs – that is, the amount of time we invest and opportunities we forego in order to earn the money. Of people’s greatest regrets at the end of life, not spending more time with their kids when they were young, is one of the most common. Overall, money to meet basic needs is necessary, but not sufficient for life happiness. It is a piece of the pie in overall life satisfaction, along with relationship satisfaction, meaningful work, health, and spiritual wellbeing.

 About the Author

Melanie Greenberg, Ph.D. is a Practising Psychologist in Mill Valley, California, and expert on mindfulness, emotions, relationships, and leadership. She has published more than 50 articles, abstracts and book chapters, and provided many workshops and invited talks/symposia to professonals and the public. Previously a Professor, she is now a practicing psychologist, speaker, and media consultant. Dr Greenberg provides workshops, consulting, and keynotes for organizations, weight loss, career, and life  coaching and psychotherapy for individuals and couples.

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