Breaking News: Money Actually Can Buy Happiness

Wicked Laughter by dbz885

Wicked Laughter by dbz885

The relationship between wealth and happiness is complicated.  People are always excited to hear (and share) snippets of research that seem to indicate that money doesn’t buy happiness.  It is comforting to believe that happiness and wealth are not related because it means we don’t have to keep trying so hard to make a buck.  But in reality, the relationship is not so clear cut.

Unfortunately, research findings that are counterintuitive are much more exciting (i.e. more likely to get published, more likely to get covered in the media, and more likely to be talked about at cocktail parties) than research that shows what everyone already expects.  And then the media tends to exaggerate those counterintuitive elements to make it even more newsworthy.  You may have heard, for example about the research that shows that lottery winners end up back at the same level of happiness within a year after their life altering event.  But you probably never heard of other research (here and here) done on money winners that showed they did, in fact, rate themselves as happier afterward. The reaction to sudden wealth is complex.  For some people it affords them opportunities to pursue their dreams, for others it alienates their close relationships and rocks the foundations of their identity.  There are no easy answers.

You may have heard about “The Spirit Level,” which is an excellent book, filled with compelling research that shows it is not so much the wealth of a nation that has an effect on happiness but the level of equality in how the wealth is distributed.  The greater the inequality, the greater the misery.  But if you read “The Spirit Level Delusion” or some of the other critiques of this book (here and here), you would realize that as compelling as their research is, it still doesn’t tell the full story.  It is tempting to think of research data as pure and unbiased, or “just the facts.”  But in reality, it can be manipulated and presented in different ways to tell a variety of stories.

You may also have heard about Robert Biswas-Diener’s research in the slums of Calcutta, where he showed that one can find happiness even among the poorest people in the poorest area of the world.  But you may not have heard that although there is happiness to be found in the lower classes of Calcutta, his research also showed that there is not as much happiness as there is in the upper classes.

There is, contrary to urban legend, sound research showing that, on average, wealthier nations are happier than poorer nations, and within countries, wealthier individuals are happier than poorer individuals.  One finding that is often publicized is that the impact on happiness decreases as nations get wealthier (i.e. for the poor, money can make a huge impact, but as you get wealthier, it is a lot harder to buy happiness with money.)  This does not necessarily mean that there is no relationship; it’s just that the relationship is on a log scale.

Although there is a strong relationship between wealth and happiness, money is not the only factor or the United States would be one of the happiest countries in the world (we are not.)  Some countries rise above the curve (like Latin American countries where strong family values, religion and cultural homogeneity seem to give people a happiness boost) and some fall below (like Eastern European nations where political instability drags everyone down.)

And then there is the quandary of why as wealth has increased over the last 100 years, the happiness needle hasn’t moved much (a.k.a. the “Easterlin paradox”).  There are a lot of possible explanations for this:

1.  Happiness is based on relative wealth or income.  Individual happiness only goes up due to comparison when someone rises above their lot in life.  If everyone gets wealthy there is no impact.

2.  Hedonic adaptation.  We quickly adapt to whatever new situation we find ourselves in so happiness is an elusive goal that always remains just out of reach.

3.  The paradox of choice.  Greater wealth has brought with it new forms of stress and personal disconnection that offset any possible happiness gains that the wealth may have provided.

And then, there is also research to suggest that growing national income does go with greater happiness (and here and here) after all.

The point is, don’t believe the fairy tale (or the media hype) that would have you believe that money and happiness are not related.  There is a relationship between wealth and happiness but it is a complex one.  How you got your wealth (becoming a millionaire when you started out as a billionaire is not likely to bring happiness), what you spend it on (spending your money on others or buying experiences rather than things can bring greater happiness), and how it makes you feel (compared to others perhaps), all influence the psychological impact of your financial situation.  Money in and of itself does not bring happiness, but money provides security, health care, time, and freedom to pursue those things that make life worth living.

Can money buy happiness?  I think it can.  But you have to invest it wisely.

References and recommended reading:

Diener, E. & Biswas-Diener, R. (2008). Happiness: Unlocking the Mysteries of Psychological Wealth.  Malden, MA: Blackwell.

Schwartz, B. (2004). The Paradox of Choice: Why More is Less. New York: HarperCollins.

Weiner, E. (2008). The Geography of Bliss: One Grump’s Search for the Happiest Places in the World. New York: Hachette.

Wilkinson, R. & Pickett, K. (2009).  The Spirit Level: Why Greater Equality Makes Societies Stronger.  Bloomsbury Press.

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15 Responses to Breaking News: Money Actually Can Buy Happiness

  1. Louis May 25, 2010 at 8:31 am #

    Excellent piece – you encourage me to think. Next time I’m at a cocktail party, I’ll be sure to paint broader strokes and tell full stories. This is our job as practitioners of PP.

    Louis

  2. Rob Fisher May 25, 2010 at 10:14 am #

    This is a nice summary of thinking on this topic. Part of what you wrote reminded me of something:

    “for the poor, money can make a huge impact, but as you get wealthier, it is a lot harder to buy happiness with money”

    That conflation of the terms “wealth” and “money” makes me wonder if researchers are treating money as a linear measurement of wealth, and whether this is affecting their results. This reminded me of some research into a famous TV game show I read about.

    “if offered the choice between getting $400,000 against taking an even chance of winning either $1 or $1,000,000 many contestants would prefer to accept the $400,000 despite that fact that if one’s strategy was simply to maximize the expected value, the contestant should reject the offer. The reason why many contestants would accept the $400,000 is due to the fact that people maximize their utility of money and not the expected value directly.”

    Indeed, as you get more money, it becomes harder to buy more *wealth* with it. For example, a five star hotel might cost ten times more to stay in than a three star hotel, but it does not buy you ten times the enjoyment because it is not ten times as good. If it was *twice* as good and made you *twice* as happy, then you could argue that there *is* a linear relationship between wealth and happiness. If we measure wealth in money terms then we will always see this fall-off in what money buys.

  3. Dan Bowling May 25, 2010 at 10:22 am #

    Very well done and nuanced. Much of what passes today for social science – the research and the way it is reported – is agenda driven. This is particularly true when one discusses wealth, class and nations, given the prevalence of marxist scholarship in this area. Thank you for putting us on warning – one must be a critical consumer of “research” to be an informed practitioner, or serious lecturer, in this field.

  4. Jeremy McCarthy May 25, 2010 at 10:40 am #

    Rob, that’s an excellent distinction on the definition of “wealth” that I had not thought of. I do notice the research on money and happiness (or at least how it is portrayed in the media) regularly conflates wealth (or assets) and income which are also totally different in terms of how they play a role in human happiness. Unfortunately, I don’t do any better job here of distinguishing between the two either.

  5. Mama-san May 25, 2010 at 11:42 am #

    I take issue with “money” as a reason or not to be happy. The model is still one of being
    a victim of circumstances that will ‘make you’ feel a certain way. If happiness is a choice
    or personal responsibility, then the question is whether it’s easier to choose to be happy’
    when you’re wealthy or not and the research doesn’t include this parameter.

  6. Lisa S. May 25, 2010 at 12:26 pm #

    One thing that I wonder about is how we measure happiness compared to how we measure wealth. We measure wealth in financial figures that have no boundaries – the amount of per capita wealth in any given country, for example, can go up infinitely. However, we measure happiness on a finite scale, often asking people to self-rate on a 1 to 10 scale. Wealth is measured absolutely; hapiness is measured subjectively and comparatively. It seems to me that as long as we continue to use different qualities of scales for each measurement, then it will be hard, if not impossible, to distinguish what might “really” be going on…

  7. Todd Kashdan May 25, 2010 at 1:22 pm #

    I see what you mean, the overlap in our synapses today is uncanny. I would say there is substantial overlap for two friends writing blog posts on the same day on the same topic.

    http://www.psychologytoday.com/blog/curious/201005/does-money-influences-happiness-depends-how-you-spend-your-cash

    Don’t forget to put me on your list when you make new posts as I can’t keep track of the daily information onslaught.

    cheers,
    Todd

  8. Marie-Josee Shaar May 25, 2010 at 6:42 pm #

    I’d like to argue that as much as money can bring happiness, happiness brings money, too! 🙂 I could (and have) write an entire essay on this, but will leave the rest to the imagination for now!

    MarieJ

  9. Radha May 25, 2010 at 6:54 pm #

    Wow and Wow…. thanks for more food for thought on this topic…
    the psychology of money and people is a fascinating topic for me! I would love to spend an entire lifetime studying it!

  10. Jeremy McCarthy May 25, 2010 at 10:12 pm #

    Thank you everyone for excellent thought provoking comments. If you haven’t checked it out yet, go to Todd Kashdan’s excellent blog from today (link in comment above,) that covered similar issue.

    Mama-san I plan to write another blog post in the future on your point that the money is less relevant than the decisions you make and how you choose to be. It is inspired by a story of a man who gave away all his money in order to be happy. Some people think he’s a genius and some people think he’s an idiot. But the most rational take I got from my network when I shared the story is the idea that having the money or not is irrelevant. He could have been happy either way. So maybe the twist is money could be irrelevant to happiness. But in most cases in today’s world, it is not.

  11. Jeremy McCarthy May 25, 2010 at 10:17 pm #

    Marie-Josee, You are so right, and there is definitely a whole other article there! I thought about including something on that angle here but didn’t have the room. To your point, since most of the research is correlational and not directional it could very well be that happiness brings money as much as it goes the other way. Love to read your article(s) on this!.

  12. Dan Bowling May 26, 2010 at 7:40 pm #

    I second Jeremy’s thoughts, MJ. Write an article! Most of the stuff I do is around well being at work, and I am beyond convinced that persons who evidence happiness at work do better financially over a career. If you go to Yahoo HotJobs right now there is an article that quotes me on that point (Don’t be an Eeyore!).

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