This may be an easy question, with a ‘yes’ or ‘no’ answer. But when there is more than one option to choose from,

it means that we can consider the question from many different perspectives.

Of course, we all have our own opinion in this topic, which is based on our values, philosophy of life and experiences. So have a moment for yourself now, and think how and why you would answer the question: does money buy happiness?

My psychological nature whispers to me that in order to answer I should dig deeper and of course ask more questions :) So let’s check what the science will tell us!

Who is happier: rich or poor people?

The most fundamental idea in economics is that money makes people happy. However, from movies, literature or our own lives we know that rich does not mean happy, and poor does not mean unhappy. Of course, what happiness means to us is also very important, and we must remember that it is always a subjective judgment.

However, many studies have shown a positive correlation between happiness and income. This means that happiness increases with income. But this effect is quite small (though reliable) in develop countries (Diener & Biswas-Diener, 2002; Frey & Stutzer, 2000) and because it is just a correlation, we can simply say that money and happiness are somehow linked, but many other things can have an impact on this relationship.

Conclusion 1: There is a positive correlation between happiness and income, but many other factors can affect it.

In addition, a very interesting experiment has shown that money interferes with people’s ability to savour positive emotions and experiences (Quoidbach & others, 2010). The richer people reported lower ability to enjoy the taste. The same effect occurs when scientists experimentally expose participants to a reminder of wealth. When the participants had the value of the money in their heads, eating a chocolate bar was not a pleasant moment for them- as they reported- and they also spent less time enjoying it compared to the control group.

 Conclusion 2: access to the best things in life may actually undercut people’s ability to enjoy small pleasures in life, such as eating chocolate or sunny weather.

But what do people think at all? Are we able to predict who is happier? Bill Gates or a waiter in a restaurant? Many studies have shown that people believe more that money will have a significant impact on their overall life satisfaction (Ahuvia, 2008). In particular, we tend to overestimate the impact of income on life satisfaction at lower income levels (Aknin, Norton, & Dunn, 2009) So we predict Bill Gates’ level of satisfaction quite well, but we will assume that the waitress is less happy than in reality. Thus, people may work hard to maintain or increase their income because they overestimate the hedonic costs of earning at a low income level.

Conclusion 3: Only in our minds “poorer” people are less happy, which can push us to try to catch something that may not actually exist.

What happens when people become rich in an unexpected way?

This is a very interesting question. Will our level of happiness increase if we get some unexpected money? Gardner and Oswald (2001) conducted a longitudinal study, which means that they tested the same people at different points on time. They took informations from approximately 9,000 random people about their psychological health and reported happiness. In the spirit of a natural experiment, this work showed that people who receive unexpected profits --by winning lottery money or receiving an inheritance -have higher mental well-being in the following year.

Conclusion 4: a person who becomes richer suddenly becomes happier. Here the next question might be: how long does this effect last?

Are we happier now?

Every country has its own economic history. However, almost everywhere the economic situation is getting better and better. People earn more money, they can afford for more, so we can say that living conditions are increasing. Does it mean that we are now happier than 40, 30, 20 years ago?

Evidence that income growth in society does not increase happiness comes from time series studies (approximately 1973 until 1989) conducted in the United States, nine European countries (Denmark, the Netherlands, Ireland, Belgium, Britain, Germany, France, Greece and Italy), and Japan. Why? Because the material norms on which judgments of well-being are based increase in the same proportion as the actual income of the society (Easterin, 1995).

Conclusion 5: Even if our living conditions are now better than they used to be, we are not happier because our standards and expectations are also increasing.

So...does money buy happiness? When I look at all these studies, I would say that there is definitely some kind of connection. But it is also obvious that happiness does not only depend on our material well-being, which can sometimes even obscure the joy of small things.

I hope that with this article you will take something for yourself. For me the most important is conclusion number 3. And for you?

It is important to check and verify our opinions and attitudes, because they influence our life choices, way of thinking and behaviours.

Ps. If you are more interested in this topic and would like to discover more about your attitudes or think abut money form another perspective, sign up for a workshop “money, money. money, must be funny, in the rich man’s world” (you can find it in a cycle of workshop “Sorry, now it’s time for myself”).

References:

Ahuvia, A. (2008). If money doesn’t make us happy, why do we act as if it does? Journal of Economic Psychology, 29, 491–507.

Diener, E., & Biswas-Diener, R. (2002). Will money increase subjective well being? A literature review and guide to needed research. Social Indicators Research, 57, 119–169.

Easterin, R. A. (1995). Will raising the incomes of all increase the happiness of all? Journal of Economic Behavior and Organization,27, 35-47.

Frey, B.S., & Stutzer, A. (2000). Happiness, economy and institutions. The Economic Journal, 110, 918–938.

Gardner, J. and Oswald A. (2001) Does Money Buy Happiness? A Longitudinal Study Using Data on Windfalls, Mimeo, Warwick University

Quoidbach, J., Dunn,E. W., Petrides, K.V. & Mikolajczak, M. (2010) Money Giveth, Money Taketh Away: The Dual Effect of Wealth on Happiness, Psychological Science, 21, 759-763