Money and happiness

As noted last week, psychological research suggests that life circumstances tend not to impact upon our happiness levels as much as we might assume. That’s not to say that these circumstances make no impact on happiness, more that perhaps the time and effort that we put into looking to change them may not be matched by whatever sustainable happiness divided accrues from those changes.

We sometimes place a lot of faith in the idea that a new job, a bigger house, a better car, a promotion etc. will make us happier. And perhaps they will, but do happiness boosts associated with changed circumstances last or are we more likely over time to drift back towards a genetically-influenced default level of happiness? The body of research work conducted in this area suggests the latter more than the former.

So, what then does that tell us about the relationship between money and happiness? If we buy into the idea that more money will make us happier and even more money will make us even happier, how is that likely to play out?

Researchers Daniel Kahneman and Angus Deaton sought to address this question in a 2010 research paper, published in Proceedings of the National Academy of Sciences of the United States of America, which attracted wide attention and subsequent comment.

Specifically, they looked to address the question of whether money buys happiness from two angles, both relevant to subjective well-being – emotional well-being and life evaluation. Arising from an analysis of survey data gathered in the United States, they found that as income increased so too did emotional well-being, but only up to a point. The figure they offered as the cut-off was $75,000 – which would translate into just under €68,000 on the current exchange rate.

Kahneman and Deaton’s findings have been challenged, both in the court of public opinion and in academic circles, but the authors themselves have insisted that to focus too much on the idea of a precise cash figure as marking the moment where happiness and income part company is to miss the key point that is being made, namely that money and happiness do not march in lockstep indefinitely.

It doesn’t take a great deal of thought to figure out that becoming fixated on this or any other precise figure might take you down an intellectual cul de sac. For one thing, the $75,000 figure is effectively a snapshot of a moment in time and was sourced exclusively from data gathered in the United States. That’s not to say that the findings are not relevant to other countries, but to highlight how we need to be aware that the precise results may not be directly applicable to, for example, this country. At the most basic level, the cost of living in individual countries will vary, so even in 2010, it most likely would have been simplistic to take the dollar figure, convert it to euros, and then conclude that the relevant sum marked the cut-off point here.

The key point, as the authors have subsequently stressed, is that there will be a cut-off. It may vary between countries, cities, and even individuals with different financial obligations, but it appears that there will be a moment for all when the correlation between increased income and increased happiness tails off. And when that point comes, it most likely will not matter whether your income doubles or trebles, once you move beyond it, no matter how much money you add to the pile, your daily sense of emotional well-being will be largely unaffected.

So, why does money seem to boost happiness up to a certain point, but not beyond it? It seems that low income is more relevant to emotional well-being than high income, in that low income correlates with low emotional well-being. As income rises from low levels, happiness will tend to increase with it, but when you reach the point where income outstrips your financial worries, that seems to be when the relationship diverges. So, what we’re saying here is that money matters when you don’t have it, when you’re struggling to pay the bills, when you can’t afford a holiday, when you can’t treat yourself… but when you reach a point where you’re able to tick all those boxes, when you’ve achieved a certain level of comfort relative to cost of living and your financial obligations, at that point more money is unlikely to make you happier.

However, the story does not end there. Kahneman and Deaton did not limit themselves to looking at emotional well-being; they also looked at life evaluation. Taking both as the constituent elements of subjective well-being, the former relates directly to how we feel, it is emotion-based, whereas the latter refers to a cognitive process, i.e., how we think about our life. It is important to be aware of that distinction, even though both come together under the subjective well-being banner.

While the key headline finding relating to $75,000 and happiness has often been referred to in the media, less attention has been given to what the authors found on money and life evaluation. Here, Kahneman and Deaton reported that there is no upper limit to the impact made by income, i.e., as income increases, so too will an individual’s positive thoughts about their life, their life satisfaction.

Ultimately, the authors note that even though we can group happiness and life satisfaction under the umbrella of subjective well-being, they represent different processes and different ‘needs’.

Tracing what is going to impact most on each, they reported that income and education level seem to be most relevant to life evaluation, while health, caregiving, and loneliness are among the strongest predictors of day-to-day emotions.

Their final conclusion was that money can buy life satisfaction, but not happiness.

This highlights the perhaps sometimes under-acknowledged distinction between how we think and how we feel. Rather than attempt to claim that one is superior to the other, it may be most productive to instead focus on being aware that those differences exist.

Dr. Mark Barry

Mark Barry was awarded a PhD by University College Cork in 2015 for his research into adolescent well-being. He has lectured psychology at UCC since 2013, and is also a freelance writer.