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Money Buys Happiness (But only upto $100k)

Updated on July 11, 2020
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Enthusiastic news analyst, with a zest for life, laughs, and leisure. Passionate about productivity, running, & enjoying the roller-coaster

Can Money Really Buy Happiness?

The quote above has been a controversial comment since the advent of money itself . To some extent, it even represents a defining struggle of the modern era. How much money does one need to really be happy? In this essay, the significance of money’s effect on happiness will be evaluated by studying the academic literature surrounding the topic.The ways in which people spend their money was also found to be of interest and is also briefly discussed, and countries are compared using basic tables.

Can Money Buy Happiness?

The quote above has been a controversial comment since the advent of money itself . To some extent, it even represents a defining struggle of the modern era. How much money does one need to really be happy?

The current global model of mercantile capitalist trade has both its advantages and drawbacks; driving innovation, raising living standards, and offering opportunity and technology to the every-man; while simultaneously causing massive inequality, conspicuous consumption and the existential threat of climate change, due to the pollution of the industrial era.

In this essay, the significance of money’s effect on happiness will be evaluated by studying the academic literature surrounding the topic. The ways in which people spend their money was also found to be of interest and is also briefly discussed.

A paper by Pederson and Schmidt (2010) found that happiness is increased when an individual’s income rises due to improvements in occupational status. Guardiola et al. (2011) found that this effect occurs unevenly across the global spectrum of incomes. The effect of increased happiness is more pronounced when initial income is low, while those with high incomes may not report any significant increase in happiness. This can be imagined as a raise of $1000p.a. granted to two people, one who earns $15,000p.a., who may see it as relatively large, and another earning $50,000 p.a., for whom it may not have much impact. Guardiola et al. (2011) therefore concluded that the effects of increased income affect people of varying incomes on a relativistic scale, which is broadly in line with numerous other studies, including Kahneman and Deaton (2010), Whilans et al. (2017) and Jebb et al. (2018). As expected, all of these studies also found that unemployment and the corresponding loss of income may potentially cause a decrease in happiness.

Kahneman & Deaton (2010) examined people’s perceptions of their own happiness in the USA, analysing more than 450,000 responses to the Gallup-Healthways Well Being Index, a daily survey of 1000 US residents, and considered happiness from two perspectives, one being “emotional well-being”, and the other “life evaluation”. They found that both emotional well-being and life evaluation both increase with rising income until the $75,000 annual income threshold is reached. At this point, life evaluation continues to rise, but emotional well-being shows no further progress. Kahneman & Deaton (2010) concluded that high income improves life satisfaction, effectively 'buying' greater happiness.


The findings of Kahneman and Deaton have recently been updated by Jebb et al (2018), who repeated their study using a much larger sample size of 1.7 million responses, spread across 164 countries, using the same two happiness perspectives. This confirmed the findings of Kahneman and Deaton (2010), that income satiation peaks at $60,000-$75,000 worldwide for emotional well-being, and around $90,000 for life evaluation. They also report that income satiation (and hence happiness) occurs later in wealthier regions, while in poorer countries, individuals may have achieved incomes beyond satiation, but may still report low life satisfaction. Jebb et al (2018) came to the conclusion that while happiness depends on the situation and a number of external factors, money does influence happiness, as it allows the individual to fulfil immediate needs as well as material desires.Thus far, the research can be said to indicate that increased income does bring increased happiness, and studies show that the current global economy shows a rough upper limit of $100,000 for ‘maximum’ happiness, in terms of emotional wellbeing and life satisfaction.


The influence of several other factors

A paper by Pederson and Schmidt (2010) found that happiness is increased when an individual’s income rises due to improvements in occupational status. Guardiola et al. (2011) found that this effect occurs unevenly across the global spectrum of incomes. The effect of increased happiness is more pronounced when initial income is low, while those with high incomes may not report any significant increase in happiness.

This can be imagined as a raise of $1000p.a. granted to two people, one who earns $15,000p.a., who may see it as relatively large, and another earning $50,000p.a., for whom it may not have much impact. Guardiola et al. (2011) therefore concluded that the effects of increased income affect people of varying incomes on a relativistic scale, which is broadly in line with numerous other studies, including Kahneman and Deaton (2010), Whilans et al. (2017) and Jebb et al. (2018). As expected, all of these studies also found that unemployment and the corresponding loss of income may potentially cause a decrease in happiness.

Kahneman & Deaton (2010) examined people’s perceptions of their own happiness in the USA, analysing more than 450,000 responses to the Gallup-Healthways Well Being Index, a daily survey of 1000 US residents, and considered happiness from two perspectives, one being “emotional well-being”, and the other “life evaluation”. They found that both emotional well-being and life evaluation both increase with rising income until the $75,000 annual income threshold is reached. At this point, life evaluation continues to rise, but emotional well-being shows no further progress. Kahneman & Deaton (2010) concluded that high income improves life satisfaction, effectively buying greater happiness.


The findings of Kahneman and Deaton have recently been updated by Jebb et al (2018), who repeated their study using a much larger sample size of 1.7 million responses, spread across 164 countries, using the same two happiness perspectives. This confirmed the findings of Kahneman and Deaton (2010), that income satiation peaks at $60,000-$75,000 worldwide for emotional well-being, and around $90,000 for life evaluation. They also report that income satiation (and hence happiness) occurs later in wealthier regions, while in poorer countries, individuals may have achieved incomes beyond satiation, but may still report low life satisfaction.

Jebb et al (2018) came to the conclusion that while happiness depends on the situation and a number of external factors, money does influence happiness, as it allows the individual to fulfil immediate needs as well as material desires.Thus far, the research can be said to indicate that increased income does bring increased happiness, and studies show that the current global economy shows a rough upper limit of $100,000 for ‘maximum’ happiness, in terms of emotional wellbeing and life satisfaction.


However, it has also been shown through the work of Guardiola et al (2011), among others, that there are other factors that affect happiness. The findings above are interesting when compared and contrasted to an analysis by Settle (2014), using data from the 2005-2008 World Values Survey, which examined perspectives on life, work, religion, economy and politics in 56 countries. The research for Settle’s (2014) study considered the perspectives of Guardiola et al (2011), who found that while money helps the poor find better housing and healthcare, they often expressed happiness regardless of wealth, which suggests that it is not the only factor that influences life satisfaction.Settle (2014) conducted her analysis with respect to both contextual factors and individual factors, and a significant part of her methodology involved considering the country’s level of freedom and economic conditions. Her results are interesting and show individual freedom played more of a role to happiness than freedom on a country level. Settle (2014) suggests that this may be due to a lack of awareness of the difference between their level of freedom and that of a country that is ‘more free’. She acknowledges this in her conclusion, saying her sources for ‘freedom’ are open to critique, but the Press Freedom Index is a widely respected source (Reporters Without Borders, 2013).

Settle (2014) concluded that money is not the only main factor shaping happiness, and while it does have a positive impact, governance, health, religion, and individual freedom are considered to play a greater role. The point made by Settle regarding governance and freedom is interesting, and can easily be compared to happiness using the latest studies (World Happiness Report 2017), as done below (Table 1 & 2).

A recent report by Transparency International (2018) ranked the corruption (good governance) levels of countries, and I have compared this to each countries happiness score (World Happiness Report, 2017), GNI-PPP scores (World Bank, 2016), life expectancy (World Health Organisation, 2015), and religiosity figures from the WIN Gallup poll (2015). Table 1 below presents a summary of the top eleven countries with regard to governance, happiness, income and religiosity.

Table 1 – Comparing Happiness with corruption, income, health and religion.

Yellow – countries that are in the top eleven for Happiness Blue – countries not in the top ten for happiness that appear frequently (Honourable mention)
Yellow – countries that are in the top eleven for Happiness Blue – countries not in the top ten for happiness that appear frequently (Honourable mention)

Results Analysis

It is quite clear to see that happiness is influenced by good governance, high income, and generally speaking, low religiosity, as half of the happiest countries are among the least religious in the world. Meanwhile, good governance, excellent healthcare, and high incomes clearly correlate well with human happiness. The link between these factors is surprisingly distinct, with the happiest countries generally taking the majority of top places on these lists of ‘best-performing countries’.

The Other End of the Spectrum

Interestingly, the results contradict Settle’s claim that religiosity promotes happiness, as most data suggests otherwise. Correlation does not imply causation, however, the results show remarkable convergent validity.

It is also intriguing that when considering this question from the opposite end of the scale, the correlation is generally similar (Table 2 below). It can clearly be seen that some of the unhappiest countries are also among the poorest, most corrupt, and most religious in the world, with people living shorter lives in general. It is worth noting that once again, the results do not support Settle’s (2014) claim that religiosity promotes happiness. It is important to mention that all the countries below have been victims of circumstances, including colonization, exploitation, war, famine, & other significant disadvantageous conditions, exacerbating unhappiness, corruption, poverty & income inequality.


The linkages at both ends of the spectrum with governance, income, and health and happiness are evidently clear, as evidenced by several studies including Settle (2014), Guardiola et al. (2011), and Pederson & Thorben (2011), among numerous others. While correlation does not imply causation, the observations are interesting nonetheless, and highlights that happiness is indeed a multi-dimensional concept, and hence money alone may not always be able to buy happiness, and that religion seems to offer a negative impact on the happiness of a country’s citizens. High corruption clearly influences happiness negatively, as does poor health, and low income (Table 2).

Countries Scoring Poorly for happiness, corruption, income, mortality and religion

Pink – countries in the bottom fifteen for happiness  Orange – countries not in the last fifteen for happiness that appear frequently (honourable mention)
Pink – countries in the bottom fifteen for happiness Orange – countries not in the last fifteen for happiness that appear frequently (honourable mention)

The differences are mostly explained by socioeconomic factors

The world happiness report derives its rankings from a study of life evaluations across 150 countries, with participants rating their happiness on a ten point Cantril ladder. Previous world happiness reports have been conducted, and the variations found have been explained using six key variables, with about half the differences explained using GDP and health, once again highlighting the relationship between income and happiness (World Happiness Report, 2018).

Spending money to buy time

Having established that money is one of the factors affecting happiness, it may also be interesting to consider how spending money may influence happiness. Whillans et al (2017) recently conducted a study regarding how people use their money, and the happiness that different choices may bring, citing Goodin et al (2008), among others, who argued that discretionary time is quickly becoming a measure of personal freedom.

The report concluded that spending money to buy time caused adults in four countries to report greater happiness, when compared to spending money on a material purchase. This research suggests a somewhat novel route towards greater life satisfaction, using money to buy oneself free time. Despite this observed linkage, Whillans et al (2017) found that their finding indicated that while people may be in a position to spend money on time-saving purchases, the practice is not widespread, and has the potential to provide people with greater amounts of discretionary time, which has been linked with increased life satisfaction (Goodin et al, 2008). Whillans et al (2017) hence suggested that more people, and groups, may stand to benefit from spending money in order to gain greater amounts of time, for example with menial chores such as cooking and cleaning etc.

While trying to explain the reasons why money spent on time-saving purchases is so low, Whilans et al cited Croft et al, (2015), who explained that women often feel obligated to complete household tasks themselves, working a ‘second shift’, even though they may be in a position to pay someone to take care of these tasks. Whilans et al (2017) also highlighted the work of Stevenson & Wolfers (2009), that women’s happiness appears to be declining over time, and suggested that this may be partially caused by the effects of this ‘second shift’. Fassioto (2016) reported that giving doctors vouchers that provided time-saving services increased their happiness, and Whilans et al (2017) cited this as supporting evidence of the positive effects of spending money to save/buy time.

The research of Whillans et al (2017) was carried out using a large sample (n=6,271), in several developed countries, namely the USA, Canada, Netherlands and Denmark, and showed fairly consistent results across income levels. Their results suggest that base income is not a factor affecting this finding, and hence the concept of using money to buy free time applies to all income groups. However, this study was conducted in only four countries, which are all among the richest and most developed worldwide (in terms of HDI), and hence it would be interesting to repeat this study in countries with lower basic incomes and HDI scores.


The concept of both increased money and increased free time driving happiness is also supported by Maditinos et al (2014), who researched the opinions of 353 Greek respondents about their sources of life satisfaction and quality of life. The results are of exceptional interest, with most respondents saying ‘paid labour’ was their primary driver of happiness, followed by leisure time, and this was interpreted by the researchers as an indication of local and international economic conditions at the time.

Universal basic income – fad or future? Post COVID19?

There are now a number of experiments running across the globe regarding this concept, and has a large number of high profile political, business and social personalities who have called for its implementation. Although the first ever referendum on universal basic income was rejected in Switzerland in 2016, numerous trial projects have been run before, and continue to run to this day. The results are mixed, as the field is new, and further research will be interesting, especially post-COVID19

Spending money on experiences

Van Boven & Gilovich (2003) argued that money spent on things that are owned brings less happiness than money spent on experiences. Van Bowen wrote a follow-up paper in 2005 on the same subject and furthered his initial work, suggesting that experiences are personal and unique, and thus harder to compare. Van Bowen’s (2005) study asked respondents about their choices regarding both income and vacation time, in comparison to what others would get. He posited several different combinations of income and vacation time for the participant against what their peers would get.

Some of the results of Van Bowen’s (2005) study were fairly predictable, in that participants preferred to earn more money than others. However, when asked about their preferences regarding vacation time, respondents typically indicated that they would prefer a longer vacation, even if it wasn’t as long as the vacations of others, or if the additional vacation resulted in less money earned (Van Bowen 2005). The Whillans et al (2017) study can be said to confirm the ideas presented by Van Bowen, as spending money to gain free time allows people to enjoy experiences.

Spending money on others (Prosocial spending)

The Whillans et al (2017) study was co-authored by Dunn & Norton, who have previously provided a large body of research and perspectives in collaboration with Atkins, among others, on the issue of how spending affects happiness. Dunn, Aknin & Norton, (2008) argue that spending money on others is also a driver of happiness, and conducted a study which involved giving participants varying amounts of money ($5 or $20), with half told to spend it on themselves (personal spending), and the other half told to spend it on others (prosocial spending). Dunn et al (2008) reported that those who spent the money on others reported feeling happier moods, regardless of the amount they had been given.

Dunn et al (2014) reported on the benefits of prosocial spending, and several papers since the initial 2008 study, in collaboration with others, has further emphasised the link between prosocial spending and happiness (Aknin et al 2012). Further studies have also shown that this link can be considered to be cross-cultural in human nature (Aknin et al, 2013a), (Aknin et al, 2013b). The recent paper by Whillans et al (2017) has supported these theories, and the convergent criterion validity of a large number of different studies conducted by these researchers has helped to shape the conclusions of this essay.

The way that money is spent clearly seems to have an impact upon happiness, and it has been shown that spending money to gain free time, enjoy experiences, and to the benefit of those around us have greater positive effects on happiness than material goods.

So Can Money Buy Happiness or Not?

In conclusion, having considered a number of recent inquiries into the interrelationships between money and happiness, This study concludes that:

Money is a factor that affects happiness, although this is only until a certain limit (globally about $70,000- $100,000, depending on country), and also largely depends on how the money is spent, with prosocial spending, money spent on free time, & money spent on experiences, all providing significantly greater happiness than material goods may off

Conclusions

Money is not the only factor affecting happiness, and good governance, individual freedom, and health also play a role, in addition to good social cohesion. Increasingly, it seems that the declining influence of religion within some of the happiest contemporary societies is a continuing trend.

The invention of money as a means of exchange has been a key driver of human civilisation, appearing in most ancient civilisations, and allowing capitalism and innovation to thrive. As a result of the supply and demand dynamic, money, by its extrinsic value and the reward system behind it, is a significant driver of happiness. The accumulation of it creates opportunities to access some of the most useful assets, and in the modern environment, flourishing businesses, entire islands, and residency in nearly every country is available with the right amount of investment.

Money is, without doubt, a useful tool and asset in contemporary life, and has a part to play in smoothening a path to happiness.

However, it is often more useful to consider happiness as a choice that is made, in many cases when circumstances outside one’s control cannot be improved, and mostly regardless of circumstances. People often choose happiness, for themselves and others, and pursue it in a variety of ways.

Summary

Happiness is a multifaceted, complex and often subjective human emotion.

Increased income has been shown to raise happiness levels, and it has been shown that this increase disproportionately affects lower income earners. This is invariably because increased income generally provides greater access to quality education, services, conveniences, and facilities, and the resulting improvements in personal & social status drive increased life satisfaction. But the answer, as usual, is more comp

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