Money And Happiness
The Real Relationship Between Money And Happiness
What a great and big question! Every day more and more people are trying to understand the relationship between money and happiness. This age-old conversation occurs in every bar, workplace and home; people talk about it a lot. It appears to me that there are generally two camps of thought - the so called 'realist' perspective that money is so essential to our well being and ability to be fulfilled in our lives that of course more money equates to more happiness, less money to less happiness.
The other, so called 'spiritual' perspective that I hear a lot is that money is the root of all evil and should not be valued, that material possessions have no relationship to happiness and that money cannot make you happy, only the higher values like love, compassion and social conscience.
The Real Relationship Between Money And Happiness
What a great and big question! Every day more and more people are trying to understand the relationship between money and happiness. This age-old conversation occurs in every bar, workplace and home; people talk about it a lot. It appears to me that there are generally two camps of thought - the so called 'realist' perspective that money is so essential to our well being and ability to be fulfilled in our lives that of course more money equates to more happiness, less money to less happiness.
The other, so called 'spiritual' perspective that I hear a lot is that money is the root of all evil and should not be valued, that material possessions have no relationship to happiness and that money cannot make you happy, only the higher values like love, compassion and social conscience.
If you want to enjoy life... make more than $75,000 a year.
Did you ever get a job offer, promotion or pay increase that brought you up another level in status and made you feel really good about yourself? Maybe you went out and bought a new car or splurged on a few electronic gadgets or took everyone out for a night on the town. It sure felt good for a while. And you gladly said goodbye to the days of brown-bagging your lunch.
But what happened a year later? You felt pretty much the same way you did before the big jump in pay. Your income was up, but so were your expenses. You’re really not that much happier or unhappier since you started making more.
WHAT'S THAT ALL ABOUT ?
It’s called the hedonic treadmill, and it means that we humans have a tendency to revert to a normative level of happiness even after undergoing major positive or negative life changes.
Psychologists Philip Brickman and Donald Campbell (who coined the term in a 1971 essay, “Hedonic Relativism and Planning the Good Society”) claimed that as people increase their income, they also increase their expectations and what they want out of life. The result: The giddy feeling you had when you first got the bump up in pay doesn’t last forever.
HOW MUCH MONEY BUYS HAPPINESS ?
But we thought money doesn’t buy happiness. That’s true after achieving a certain income threshold -- $75,000 per year, that is.
"If you want to enjoy life, focus on relationships and health once you make more than $75,000 a year," wrote Edward Diener, Ph.D., a University of Illinois psychology professor who studies well-being. Of course, $75,000 might not give you financial security if you live in New York City or L.A. or if you have a wife and three kids to support, but you get the idea. Everybody at least needs to keep the wolf away from the door.
Reversed, a lack of a certain amount of money or financial security can buy you terrible unhappiness. A recent Princeton University study shows that financial security is important (that is, people with very low incomes are unhappy because of their lack of security), but once you reach a certain “comfortable” threshold, factors other than your finances become more responsible for your happiness.
AND IF YOU DON'T MAKE MORE THAN $75,000 ?
Are we doomed gerbils senselessly running on a giant spinning wheel? Is there no point in our trying to “get ahead” and strive for that big promotion? Maybe not. But maybe there are a few things you can do to get off the treadmill and out onto the open road, where at least there is fresh air, and the view is a lot better.
Stay Positive
If you feel like you’re not getting ahead, you might try focusing on the good things you have -- though it’s more powerful to imagine what life would be like without something you value very much (a relationship, your family, your legs).
Give Gifts
Don’t you get annoyed when people tell you it’s better to give than receive? You’ll be even more annoyed to discover that those people are right. Studies show that happiness is less dependent on things like your income and more dependent on day-to-day activities. That means giving gifts makes you feel better and strengthens relationships.
Don’t Compare Yourself To Others
“Compare and despair," goes an old saying. People really do make themselves miserable when they focus on their “relative” well-being. That means how they think they’re doing compared to everyone else.
Cultural beliefs
Did you ever get a job offer, promotion or pay increase that brought you up another level in status and made you feel really good about yourself? Maybe you went out and bought a new car or splurged on a few electronic gadgets or took everyone out for a night on the town. It sure felt good for a while. And you gladly said goodbye to the days of brown-bagging your lunch.
But what happened a year later? You felt pretty much the same way you did before the big jump in pay. Your income was up, but so were your expenses. You’re really not that much happier or unhappier since you started making more.
WHAT'S THAT ALL ABOUT ?
It’s called the hedonic treadmill, and it means that we humans have a tendency to revert to a normative level of happiness even after undergoing major positive or negative life changes.
Psychologists Philip Brickman and Donald Campbell (who coined the term in a 1971 essay, “Hedonic Relativism and Planning the Good Society”) claimed that as people increase their income, they also increase their expectations and what they want out of life. The result: The giddy feeling you had when you first got the bump up in pay doesn’t last forever.
HOW MUCH MONEY BUYS HAPPINESS ?
But we thought money doesn’t buy happiness. That’s true after achieving a certain income threshold -- $75,000 per year, that is.
"If you want to enjoy life, focus on relationships and health once you make more than $75,000 a year," wrote Edward Diener, Ph.D., a University of Illinois psychology professor who studies well-being. Of course, $75,000 might not give you financial security if you live in New York City or L.A. or if you have a wife and three kids to support, but you get the idea. Everybody at least needs to keep the wolf away from the door.
Reversed, a lack of a certain amount of money or financial security can buy you terrible unhappiness. A recent Princeton University study shows that financial security is important (that is, people with very low incomes are unhappy because of their lack of security), but once you reach a certain “comfortable” threshold, factors other than your finances become more responsible for your happiness.
AND IF YOU DON'T MAKE MORE THAN $75,000 ?
Are we doomed gerbils senselessly running on a giant spinning wheel? Is there no point in our trying to “get ahead” and strive for that big promotion? Maybe not. But maybe there are a few things you can do to get off the treadmill and out onto the open road, where at least there is fresh air, and the view is a lot better.
Stay Positive
If you feel like you’re not getting ahead, you might try focusing on the good things you have -- though it’s more powerful to imagine what life would be like without something you value very much (a relationship, your family, your legs).
Give Gifts
Don’t you get annoyed when people tell you it’s better to give than receive? You’ll be even more annoyed to discover that those people are right. Studies show that happiness is less dependent on things like your income and more dependent on day-to-day activities. That means giving gifts makes you feel better and strengthens relationships.
Don’t Compare Yourself To Others
“Compare and despair," goes an old saying. People really do make themselves miserable when they focus on their “relative” well-being. That means how they think they’re doing compared to everyone else.
Cultural beliefs
I think our culture itself has very mixed up beliefs and values and tends to be very black and white in them - since the distribution of wealth in this world has been so unequal and since lack of money has caused, and still causes so much deprivation around the world, it is easy for people to denounce money as evil and those that have lots of it must therefore be greedy and evil themselves! I think this is a mistake that actually takes away the ability for us to be responsible for money and its distribution according to our own values. There are plenty of philanthropists across the world (Bill Gates included) who have created a lot of wealth in order that they can start distributing it to good causes around the globe. Is this evil?
Materialism
The western culture can certainly be described as materialistic in values - success tends to be measured in the financial wealth we have, the things we can buy to look good and enjoy and it can give us social status and power. It is easy to believe that being successful in this materialistic world will bring happiness and if a person puts all their life energy into the acquisition of money then they may be very unhappy and disappointed if they are not successful. Crucially to this question there are huge numbers of people that report that even though they have been financially successful, they were often left feeling cheated because they had worked so damn hard they had missed their children growing up, or they were left wanting even more wealth, so the acquisition of money itself became a type of addiction that brushed aside all other values that a person might hold dear in their heart.
Abundance or deprivation mentality ?
On the other side, I know many people that believe they are 'spiritually' led and who do great deeds in their communities, but this work is limited in effectiveness because they choose to deprive themselves of sufficient money for themselves and/or their causes, believing that money is evil or bad. Money could be such a useful and brilliant tool to help them support their communities in ways that are meaningful and valuable to them, but they are blocking the opportunity for money. I suspect that at some level they are not truly happy because they are giving money more power than it deserves to have. They are allowing themselves to 'be right' about the so called evils of money rather than be happy and welcome money for the purpose of good. Their beliefs may be borne out of righteous anger (how dare the rich be rich!) or fear (I don't understand how to use money powerfully), rather than from a true spiritual love and compassion.
Your beliefs
So let's look at your beliefs around money and happiness. Answering the following questions may help you to understand whether you are relying on having or not having money in order to be happy, or whether you can see money in it's true perspective, as a valuable tool that can be used to support the expression of your own personal values and who you really are as a person.
1) Do you believe money is evil? (or do you worship money as the most important thing?)
2) Do you believe that the rich are the 'haves' and that you are the 'have-nots'? (or vice versa, that the poor are the 'have-nots' and you are the 'haves'?)
3) Do you believe that money can 'buy' happiness?
If you answered yes to any of the questions, ask yourself "Why do I believe this and where does this belief come from?" It may be helpful for you to look at how your family talked about money when you were growing up. For instance, if your family had some financial struggles it is likely that some of your beliefs will reflect this.
Is there a relationship between money and happiness or not ?
To sum up, whatever our individual or societal beliefs around money, it is actually just a tool with no inherent goodness or badness - in reality it's just a representation of an exchange of value!
Happiness however is an internal state of being - happiness could be defined as a personal outcome of living according to and aligned with our own personal values. Therefore happiness probably has no relation to money, except that money could be used to support the expression of our personal values in the world.
Developing an abundance mentality
We need not be scared of valuing money, nor belittle it or those that have lots of it. We can, if we choose, develop healthy beliefs around money that support our own and the world's abundance. In doing so the world opens up to opportunities we didn't see before, such as your local philanthropist willing to give you 50k to start the charity you have been dreaming of starting, or your spotting a job opportunity in the local paper at the higher end of the pay scale where you wouldn't normally look!
If you are interested in exploring your own beliefs and attitudes around money some more, and developing an 'abundance mentality', please do get in touch!
Last week a paper was published on the relationship between income and well-being that argued there was no support for the claim that “once ‘basic needs’ have been met, higher income is no longer associated with higher subjective well-being”.
However, while an interesting paper, it does not provide evidence that striving after ever-higher levels of income is an efficient way to improve well-being. Nor does it provide evidence of a linear relationship between income and well-being – as the authors themselves say: “the relationship between well-being and income is roughly linear-log”.
That three letter word – log – holds the key to properly understanding this paper. Using the logarithmic transformation of income (the ‘log of income’) allows the authors to plot as a straight line what is most naturally represented as a curve. This means that even though the relationship between income and well-being may be robust at higher levels of income, it is definitely not linear.
As individuals get richer, there are diminishing marginal returns to increases in income, so as an individual becomes richer and richer, income matters less and less in terms of improving their well-being. And in addition, the increases in well-being achieved from increasing income, at the high end, are dwarfed by well-being differences associated with social relationships or other things. More income might ‘buy’ a little more happiness, but more friends would ‘buy’ a lot more.
This curved shape of this income/well-being relationship is now established by a wealth of literature but, and although mentioned by the authors, the language they use – especially in the abstract – appears to underplay it, potentially leading to serious misinterpretation.
A quick scan of some recent headlines about the article confirms such fears: “Proof that money does in fact buy happiness” is the headline of one blog reporting on this study, with others including “Money Buys Happiness and You Can Never Have Too Much, New Research Says”, “Money can buy happiness, says study” and “Science: Money makes you happier”. These headlines are simply not good advice for many people about how to best improve their well-being.
It’s not that income isn’t important to well-being – it’s a really key driver. But misinterpreting these results matters because if you believe that the relationship between income and well-being is linear then the implication is that, as an individual, you should always strive to earn more and more money, no matter how wealthy you already are.
And whilst log income has little psychological meaning for people – and so should not be the target for governments designing policies to maximise well-being – time does. And it’s limited. This means that there are often better ways to spend our precious time to improve our well-being than by making more money – especially when you are already comfortably off. And the evidence also suggests that there would be substantial gains to the overall level of well-being of a country if wealth was redistributed from the richest people to the poorest. Politicians of all parties need to pay attention to this large body of evidence on what can lead to higher well-being.
Well-being evidence has important implications for policy-making; we need to make sure the evidence is reported clearly so that the public and policy-makers alike understand what it shows about the most efficient ways to improve well-being.
Numerous studies have shown that spending money on life experiences, compared to material possessions, improves psychological well-being. However, not everyone feels happier when purchasing life experiences. Psychologists have begun to study the psychological consequences of different motivations for experiential purchasing. They have found that purchasing experiences for intrinsic reasons, such as personal satisfaction, leads to more well-being than purchasing experiences for extrinsic reasons, such as trying to impress others.
Materialism
The western culture can certainly be described as materialistic in values - success tends to be measured in the financial wealth we have, the things we can buy to look good and enjoy and it can give us social status and power. It is easy to believe that being successful in this materialistic world will bring happiness and if a person puts all their life energy into the acquisition of money then they may be very unhappy and disappointed if they are not successful. Crucially to this question there are huge numbers of people that report that even though they have been financially successful, they were often left feeling cheated because they had worked so damn hard they had missed their children growing up, or they were left wanting even more wealth, so the acquisition of money itself became a type of addiction that brushed aside all other values that a person might hold dear in their heart.
Abundance or deprivation mentality ?
On the other side, I know many people that believe they are 'spiritually' led and who do great deeds in their communities, but this work is limited in effectiveness because they choose to deprive themselves of sufficient money for themselves and/or their causes, believing that money is evil or bad. Money could be such a useful and brilliant tool to help them support their communities in ways that are meaningful and valuable to them, but they are blocking the opportunity for money. I suspect that at some level they are not truly happy because they are giving money more power than it deserves to have. They are allowing themselves to 'be right' about the so called evils of money rather than be happy and welcome money for the purpose of good. Their beliefs may be borne out of righteous anger (how dare the rich be rich!) or fear (I don't understand how to use money powerfully), rather than from a true spiritual love and compassion.
Your beliefs
So let's look at your beliefs around money and happiness. Answering the following questions may help you to understand whether you are relying on having or not having money in order to be happy, or whether you can see money in it's true perspective, as a valuable tool that can be used to support the expression of your own personal values and who you really are as a person.
1) Do you believe money is evil? (or do you worship money as the most important thing?)
2) Do you believe that the rich are the 'haves' and that you are the 'have-nots'? (or vice versa, that the poor are the 'have-nots' and you are the 'haves'?)
3) Do you believe that money can 'buy' happiness?
If you answered yes to any of the questions, ask yourself "Why do I believe this and where does this belief come from?" It may be helpful for you to look at how your family talked about money when you were growing up. For instance, if your family had some financial struggles it is likely that some of your beliefs will reflect this.
Is there a relationship between money and happiness or not ?
To sum up, whatever our individual or societal beliefs around money, it is actually just a tool with no inherent goodness or badness - in reality it's just a representation of an exchange of value!
Happiness however is an internal state of being - happiness could be defined as a personal outcome of living according to and aligned with our own personal values. Therefore happiness probably has no relation to money, except that money could be used to support the expression of our personal values in the world.
Developing an abundance mentality
We need not be scared of valuing money, nor belittle it or those that have lots of it. We can, if we choose, develop healthy beliefs around money that support our own and the world's abundance. In doing so the world opens up to opportunities we didn't see before, such as your local philanthropist willing to give you 50k to start the charity you have been dreaming of starting, or your spotting a job opportunity in the local paper at the higher end of the pay scale where you wouldn't normally look!
If you are interested in exploring your own beliefs and attitudes around money some more, and developing an 'abundance mentality', please do get in touch!
Last week a paper was published on the relationship between income and well-being that argued there was no support for the claim that “once ‘basic needs’ have been met, higher income is no longer associated with higher subjective well-being”.
However, while an interesting paper, it does not provide evidence that striving after ever-higher levels of income is an efficient way to improve well-being. Nor does it provide evidence of a linear relationship between income and well-being – as the authors themselves say: “the relationship between well-being and income is roughly linear-log”.
That three letter word – log – holds the key to properly understanding this paper. Using the logarithmic transformation of income (the ‘log of income’) allows the authors to plot as a straight line what is most naturally represented as a curve. This means that even though the relationship between income and well-being may be robust at higher levels of income, it is definitely not linear.
As individuals get richer, there are diminishing marginal returns to increases in income, so as an individual becomes richer and richer, income matters less and less in terms of improving their well-being. And in addition, the increases in well-being achieved from increasing income, at the high end, are dwarfed by well-being differences associated with social relationships or other things. More income might ‘buy’ a little more happiness, but more friends would ‘buy’ a lot more.
This curved shape of this income/well-being relationship is now established by a wealth of literature but, and although mentioned by the authors, the language they use – especially in the abstract – appears to underplay it, potentially leading to serious misinterpretation.
A quick scan of some recent headlines about the article confirms such fears: “Proof that money does in fact buy happiness” is the headline of one blog reporting on this study, with others including “Money Buys Happiness and You Can Never Have Too Much, New Research Says”, “Money can buy happiness, says study” and “Science: Money makes you happier”. These headlines are simply not good advice for many people about how to best improve their well-being.
It’s not that income isn’t important to well-being – it’s a really key driver. But misinterpreting these results matters because if you believe that the relationship between income and well-being is linear then the implication is that, as an individual, you should always strive to earn more and more money, no matter how wealthy you already are.
And whilst log income has little psychological meaning for people – and so should not be the target for governments designing policies to maximise well-being – time does. And it’s limited. This means that there are often better ways to spend our precious time to improve our well-being than by making more money – especially when you are already comfortably off. And the evidence also suggests that there would be substantial gains to the overall level of well-being of a country if wealth was redistributed from the richest people to the poorest. Politicians of all parties need to pay attention to this large body of evidence on what can lead to higher well-being.
Well-being evidence has important implications for policy-making; we need to make sure the evidence is reported clearly so that the public and policy-makers alike understand what it shows about the most efficient ways to improve well-being.
Numerous studies have shown that spending money on life experiences, compared to material possessions, improves psychological well-being. However, not everyone feels happier when purchasing life experiences. Psychologists have begun to study the psychological consequences of different motivations for experiential purchasing. They have found that purchasing experiences for intrinsic reasons, such as personal satisfaction, leads to more well-being than purchasing experiences for extrinsic reasons, such as trying to impress others.
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