Does Money Bring Happiness?

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Does the amount of money we earn decide our level of happiness? Do rich people stop caring about how much money they have beyond a point? Does getting the basics of food, clothing, shelter and security give us happiness? More importantly, how much more do we have to work to reach the income level which will make us happy? I have the answers… well almost.

The age old question about whether more money will bring more happiness in your life. Many people believe that if they can get more money, they will be happier and life will be perfect. On the other hand, we hear stories about people who fight for the needy for free or at a nominal price but are very happy. So, which view is correct?

According to the research conducted by psychologists in the US (Kahneman & Deaton, 2010), happiness levels increase when there is an increase an income but only upto a specific limit. In this study, the researchers found that when the income reached 75000 USD per annum, there was a very marginal increase in happiness levels, which remained more or less the same. However, a more recent study by Killingsworth (2021) has found that an increase in income even above $75,000 a year?is associated with feeling better day-to-day and being more satisfied with life overall. This study tracked happiness levels of people using an app called Track Your Happiness where people recorded both evaluative and experienced well-being a few times each day, with randomised check-in times for participants. Interestingly, the 2021 study also notes that there may be some point beyond which money loses its power to improve well-being but their results suggest that point may lie higher than what was thought earlier.

Does this mean that that an arbitrary number decides our level of happiness? Do rich people stop caring about how much money they have beyond a point? Does getting the basics of food, clothing, shelter and security give us happiness? More importantly, how much more do I have to work to reach the income level which will make me happy?

Before we can reach any conclusion about whether money brings happiness, we need to consider that both these studies are co-relational studies. As anyone who has studied statistics will tell you, co-relation does not mean causation. Having a higher income does not cause an increase in happiness levels. It just means that when income increases, there is also an increase in happiness levels generally. There could be many other factors that result in increase in the happiness levels.

Even though we do not have an absolute income level at which the increase in rate of happiness reaches a plateau, researchers have found that we feel happier when our income level is more than our reference group’s income level (Lakshmanasamy, 2022). A comparison of our income level with someone who earns less than us, makes us happier, while the opposite is true when we compare our income level with someone who earns more than us. It’s all relative! So, an easy trick to make yourself feel better when you are feeling low is to just compare your income with the income of the peer who earns less than you! Who knew, it was this simple.

A comparison of our income level with someone who earns less than us, makes us happier, while the opposite is true when we compare our income level with someone who earns more than us. It’s all relative!

Not so fast though. It’s not as simple. We’ve all heard stories about unhappy lawyers who are getting six figure salaries and bonuses. If social comparison was the sole measure of happiness based on our income level, corporate lawyers would be happy all the time! Although this is not the only way and a discussion on happiness would require many months and years, one important aspect of happiness is how you spend your money such that it makes you happy. A study by Dunn, Gilbert & Wilson (2011) has found that happiness increases when money is spent on firstly, more experiences and less on purchasing materialistic goods; secondly, when it is used for someone else rather than for self and thirdly, when it is spent on lots of small things which are pleasurable as compared to few large ones. If you spend your money on experiences rather than material possessions, it will increase your happiness (Mogilner & Norton, 2016). However, this relationship is mediated by whether the experience was a positive one or a negative one. Spending on positive experiences will increase happiness, however, spending on negative experiences can reduce happiness (Nicolao et al., 2009).

Happiness increases when money is spent on firstly, more experiences and less on purchasing materialistic goods; secondly, when it is used for someone else rather than for self and thirdly, when it is spent on lots of small things which are pleasurable as compared to few large ones

So, to answer the main question, it’s not money itself that increases your happiness but how you choose to spend it. Money is simply a tool which can be used to increase happiness. Time to stop sacrificing our positive experiences to make more money, maybe?

References:

1. Nettle, D. (2005). Happiness: The Science Behind Your Smile. Oxford University Press.

2. A. T. Jebb, L. Tay, E. Diener, S. Oishi, Happiness, income satiation and turning points around the world. Nat. Hum. Behav. 2, 33–38 (2018).

3. D. Kahneman, A. Deaton. (2010). High income improves evaluation of life but not emotional well-being. Proc. Natl. Acad. Sci. U.S.A. 107, 16489–16493.

4. Mogilner, C., & Norton, M. I. (2016). Time, money, and happiness. Current Opinion in Psychology, 10, 12–16. https://doi.org/10.1016/j.copsyc.2015.10.018

5. Leonardo Nicolao, Julie R. Irwin, Joseph K. Goodman. (2009). Happiness for Sale: Do Experiential Purchases Make Consumers Happier than Material Purchases?, Journal of Consumer Research, 36(2), 188–198. https://doi.org/10.1086/597049

6. Dunn, E. W., Gilbert, D. T., & Wilson, T. D. (2011). If money doesn’t make you happy, then you probably aren’t spending it right. Journal of Consumer Psychology, 21(2), 115–125. https://doi.org/10.1016/j.jcps.2011.02.002

7. Killingsworth MA. (2021). Experienced well-being rises with income, even above $75,000 per year. PNAS. 118(4). doi:10.1073/pnas.2016976118

8. Lakshmanasamy, T. (2022). Determinants of Happiness in India: Time Series Ordered Probit Estimation of Subjective Well-Being. Journal of Organisation & Human Behaviour. 11(1), 11-20.