Money and happiness

Written By: - Date published: 7:50 am, May 1st, 2011 - 35 comments
Categories: capitalism, class war, poverty - Tags: , ,

The pursuit of wealth far in excess of need is a powerful and pervasive aspect of (most) human societies. But it is unhealthy, damaging, sick. One fairly influential book has gone so far as to describe the love of money as the root of all evil. So why do we do it? Does money make us happy? You can find plenty of people arguing yes, and plenty arguing no. Possibly because both are half right. A couple of recent good popular science articles explain. From Time:

People say money doesn’t buy happiness. Except, according to a new study from Princeton University’s Woodrow Wilson School, it sort of does — up to about $75,000 a year. The lower a person’s annual income falls below that benchmark, the unhappier he or she feels. But no matter how much more than $75,000 people make, they don’t report any greater degree of happiness.

From Newsweek:

“Psychologists have spent decades studying the relation between wealth and happiness,” writes Harvard University psychologist Daniel Gilbert in his best-selling “Stumbling on Happiness,” “and they have generally concluded that wealth increases human happiness when it lifts people out of abject poverty and into the middle class but that it does little to increase happiness thereafter.”

… The nonlinear nature of how much happiness money can buy—lots more happiness when it moves you out of penury and into middle-class comfort, hardly any more when it lifts you from millionaire to decamillionaire—comes through clearly in global surveys that ask people how content they feel with their lives …

Some researchers get a bit more sophisticated, and distinguish between different kinds of happiness. From the Time article again:

Before employers rush to hold — or raise — everyone’s salary to $75,000, the study points out that there are actually two types of happiness. There’s your changeable, day-to-day mood: whether you’re stressed or blue or feeling emotionally sound. Then there’s the deeper satisfaction you feel about the way your life is going — the kind of thing Tony Robbins tries to teach you. While having an income above the magic $75,000 cutoff doesn’t seem to have an impact on the former (emotional well-being), it definitely improves people’s Robbins-like life satisfaction. In other words, the more people make above $75,000, the more they feel their life is working out on the whole. But it doesn’t make them any more jovial in the mornings.

I’m a bit dubious about the claimed effect of money on this second, long term “happiness”. If it was true we would expect to see a correlation between the wealth of countries and their happiness, and we don’t (see the Newsweek piece, and other sources such as The Spirit Level).

Being the social creatures that we are, a lot of our assessment of happiness (after we reach the middle class plateau) are probably tied up with our perception of rank / status. For example:

Statistics consistently show that we care less about our actual pay level than we do about earning more than our colleagues and neighbours. Andrew Oswald, professor of economics at Warwick University, conducted a major study that revealed we would rather be the second-best-paid person in a firm or department than the second-worst-paid – even if, in the latter case, the salary is actually higher. Rank is what really matters, not cash.

This is probably the underlying reason for the very damaging effects that great disparities in wealth have on society (once again see The Spirit Level).

Anyway, put it all together. How do we improve a society’s happiness most effectively? By lifting the poor out of poverty. By increasing wealth where we get more happiness bang for our income buck. By reducing disparity not (as some hysterical alarmists would have it) by cutting down the top end, but by lifting up the bottom. (Coincidentally we also improve health, educational outcomes, productivity, and a range of other social indicators of course.) It all seems pretty obvious. And yet culturally, and in practice, most “Western” countries, including New Zealand, are currently moving in the opposite direction.

35 comments on “Money and happiness”

  1. ianmac 1

    Perhaps the happiness on reaching $75,000 (NZ or US by the way?) is offset as the salary grows beyond that figure, by growing anxiety about hanging on to the money, anxiety about being seen to be wearing the right clothes, (greenstone suit?) and anxiety about mixing with the “right” people. A while ago one of the high flyers who mixed with other high flyers, noted the sudden evaporation of his “friends” when he struck a very bad patch. And the anxiety faced by people who get very wealthy and don’t have to work but holiday all the time. What is the point of their existence?

    • Colonial Viper 1.1

      I think it would be US$75,000 for an individual.

      In NZ the comparable figure would be about NZ$85,000 p.a. I suspect.

      Sociopaths require more, much much more of course.

      • burt 1.1.1

        And that amount would be about what your beloved Labour party would call rich !

        You must feel really stupid supporting this concept and supporting a party that claims people are rich when they are earning what you seem to agree is the threshold for happiness.

        • Draco T Bastard 1.1.1.1

          Why would you want more if you have everything you need?

          There’s only one answer burt.

        • Colonial Viper 1.1.1.2

          You must feel really stupid supporting this concept and supporting a party that claims people are rich when they are earning what you seem to agree is the threshold for happiness.

          In fact, I’m quite comfortable with it.

        • felix 1.1.1.3

          Why would you want more than enough money to make you happy?

          When people treat drugs, food, or alcohol this way they’re recognised as having a serious problem.

          • burt 1.1.1.3.1

            That being what it is, do you honestly think that earning just enough to afford a better class of chardonnay is the socialist end game ?

            • felix 1.1.1.3.1.1

              Not in the mood for interpreting your riddles tonight, they invariably lead nowhere.

              Why do you want more money?

              • Colonial Viper

                What burt you think that having $200 dinner outs supplemented by $90 bottles of wine every week will somehow make you a happier, better or more interesting person???

                Or just someone overfed but just as tedious as you are now?

                BTW I am more than aware that capitalists see the racking up of more and more net worth as some kind of game they like to distract themselves with and measure themselves against. Pah.

  2. vto 2

    I agree. Always said that of course money does not buy happiness, but what it does do is stop things which can make you unhappy. Such as not being able to pay for a roof over your head, or food in your belly, or worry about bills. All these things can cause unhappiness and an adequate amount of money will prevent this.

    • felix 2.1

      Yep indeed, I reckon it’s solving or eliminating the impediments to happiness that matter whether there’s money involved or not. e.g. it probably doesn’t matter to you whether you can afford whitebait or not ‘cos you’ve got the ability to go get them yourself.

      I’d go a little further though and say that the security of knowing that you’ll still be able to catch whitebait next season, and the season after that, and so on is a factor.

      Good to hear from you btw, how’s it all going for you down there?

      • vto 2.1.1

        Well felix, like many people the slow grind into winter is building. There is a deeper (tho not too deep) sadness and unhappiness which is affecting many. Grinding on is how many would describe things. Grinning and bearing it. Still many people with unresolved questions about their futures. Mind you, it is location specific. Out west etc is a different story.

        But not an unhappiness that a big dollop of money wouldn’t solve hee hee..

        oh, and I imagine the whitebait are gonna get hammered by Cantabrians this season too.

  3. terryg 3

    odds on that $74k is about the point where all of Mazlow’s hierarchy of human needs is not just achieved in the now, but can confidently be expected to continue into the future.
    It shouldnt be a surprise that once h\we have all we really need, and are secure in our knowledge it wont be snatched away, that having more money wont make us any happier.

  4. burt 4

    How do we improve a society’s happiness most effectively? By lifting the poor out of poverty. By increasing wealth where we get more happiness bang for our income buck. By reducing disparity not (as some hysterical alarmists would have it) by cutting down the top end, but by lifting up the bottom.

    That would imply a reasonably flat tax structure with a fat tax free bottom end – I can think of one political party that has consistently pushed that agenda.

    So where is this leaving you rOb, seems you are well aware of what needs to be done but you are supporting a failed ideology that has never even worked toward what you want.

    • Zorr 4.1

      Actually it suggest that a benevolent socialist/communist community would meet the needs most ideally. Not some failed neo-liberal free market ideology.

    • burt 4.2

      OK Zorr, perhaps you could start by listing successful enduring communist societies. The you could pull your head out of your ass and list socialist/communist societies that don’t rely on heavy redistribution by chopping down high earners to artificially (unsustainably) lift the bottom end.

      • felix 4.2.1

        But burt, communism/socialism in the context you’re describing it is all about redistribution – of the ownership of the means of production, the capital, the profits of the work done in a society.

        Asking for examples of communist economic systems that don’t involve heavy redistribution is like asking you for examples of successful capitalist economies that don’t allow citizens to own property.

        • burt 4.2.1.1

          felix

          Agree, but rOb said;

          By reducing disparity not (as some hysterical alarmists would have it) by cutting down the top end, but by lifting up the bottom.

          And supports a party of high progressive redistribution from low thresholds – how does that work?

          How do we reduce disparity without harshly progressive taxation which will always be seen as tall poppy bashing?

          If rOb had said;

          By reducing disparity not (as some hysterical alarmists would have it) by cutting down the top end, but and by lifting propping up the bottom.

          Then things might have turned out differently.

          • felix 4.2.1.1.1

            Pay people more for their work. Make less return on investment.

            Simple as that.

        • neoleftie 4.2.1.2

          Time for the NEXT economic system i think. We have had socialist and capitalist one in various gises, a blend of the two trumped as the ‘third way’ now we need a debate on how to the masses as a whole become both more productive and economicly more robust.

      • Draco T Bastard 4.2.2

        perhaps you could start by listing successful enduring communist societies.

        Nope, sorry, no can do as there haven’t actually been any. Been a lot of failed state capitalist ones though.

        • Colonial Viper 4.2.2.1

          And more to the point, there have been ZERO purely capitalist societies EVER

          EVERY western nation operates under a mix of capitalist and socialist principles, under a mix of free market and regulated market controls, under a mix of private and public ownership.

          And the western nations which have the best outcomes of child health, life satisfaction, low crime, longevity and quality of life tend to be the ones which lean quite a bit more to the socialist end of the spectrum.

  5. Money is not evil. What people do with money is evil.

    Living beyond your means is what causes financial worry. This does not apply to low income people as there is no fat to trim.

    Living on credit compounds debt and this can go on for years and years. E.g a person lends $1000 they do not have, they have to pay it back, another $1000 they do not have and then interest on the initial credit.

    There is one thing that money cannot buy, poverty!

    I am pleased to hear people raising regularly how much the government is borrowing as I regard this to be out of control.

    • Colonial Viper 5.1

      Money is not a resource but a means of exchange and a token representing a claim on real resources, but it is not a resource in itself.

      And the Government should be supplying itself its own money, interest free, not sourcing it from China, Germany, et al.

  6. Vicky32 6

    Having lost my job because the company collapsed 3 months after NACT got into power (and yes, there almost certainly was a connection), and being unable to find a new one in the nearly 3 years since, I have to say that the most distressing part of it all is my new attitude to money.
    I am forced to care about it (because I don’t have enough). I owe my son $600.00, and that makes me deeply ashamed.
    I never used to give a toss about money, even when I was on the DPB. At least we always managed somehow, then.
    Now I can’t (on UB).
    I deeply resent that since NACT got into power, I have even had fantasies about winning Lotto (although I’d have to actually buy a ticket first! 😀 )

  7. nadis 7

    Enough of the focus on income disparity. That shouldn’t be the issue you focus on. Focus on raising the incomes of the poor. I don’t care if a society has high disparity of income because there are lots of very wealthy, as long as the lower echelons are only relatively low, not absolutely low.

    North Korea, Somalia, Cuba etc all have very low disparity of income, but shit average or median incomes along with it.

    It’s not that subtle a message but when the vast majority of the population hears “reduce disparity of income”, “distribute wealth more fairly” its an electoral turnoff. People are and always will be aspirational in terms of wealth, irrespective of what kind of society they live in.

    Seriously, more of the “raising the incomes of all NZers, especially the poorest” and less of the implied “redistribute from the haves to the have nots” and not so many voters will snort with derision when hearing from Labour or the left.

    And Viper, are you talking social credit polices. Seriously, and genuinely, how would you design an economy to run on free and unlimited credit? I know that is kind of what the US is doing at the moment……. but how would you make it work?

    • felix 7.1

      In the US, as in NZ, the govt has relinquished the monopoly on creating credit to private institutions.

      This means that the govt cannot create credit but must borrow every dollar it spends into circulation and interest must be paid on it.

      This is incredibly expensive for all of us, extremely profitable for the privately owned banking institutions who perform this function, and totally unnecessary as the govt could just as easily create the credit itself and save us all the interest.

      • Colonial Viper 7.1.1

        nadis, what Felix said. BTW credit would not be unlimited, the Government would continue to limit the amount of cash available in the system to meet the normal needs of commerce and market activities, and to meet the needs of peoples’ day to day requirements.

        The liquidity in the system is tightly controlled, but that liquidity is not sourced from foreign interest bearing debt.

    • neoleftie 7.2

      unfortuantely there is only a cetain amount of wealth or money generated to be spread around…therefore we need a new type of system where its not the state that reallocates taxed monies to the lower 40%^ but a more condenced income bands. Get rid of the extreme elite parasites. Surely the net productive worth of a job or person is a better measure of a wage than letting a artifical market decide.
      Time for Labour to reaffirm its true heritage and rekindle the workers party ideals and bring about meaningful change at amarcoeconomic manner. The electorate is ripe for leadership and direction that rewards hard honest work and not handouts to either the lower socio economic strati or massive tax payer handout to the elites.

      If the Tories / Act get another term:
      1) good bye state assets
      2) lower company tax
      3) cuts across the baord on any state assistance programs
      4) state sector is slowly but surely diminished

    • Draco T Bastard 7.3

      I don’t care if a society has high disparity of income because there are lots of very wealthy, as long as the lower echelons are only relatively low, not absolutely low.

      Despite what the economists say the economy is a zero sum game. Having a few very rich people truly does mean that you will have lots of poverty.

      Seriously, and genuinely, how would you design an economy to run on free and unlimited credit?

      You don’t and CV hasn’t said to do so. In fact, a major problem with world finances ATM is the fact that we have free and unlimited credit. The banks print as much money as they want.

  8. mikesh 8

    “And Viper, are you talking social credit polices. Seriously, and genuinely, how would you design an economy to run on free and unlimited credit? I know that is kind of what the US is doing at the moment……. but how would you make it work?”

    The free and unlimited credit would only be used, by government, for government spending and public works etc. The said government would then levy taxation just sufficient to avoid inflation.

  9. This article is probably the most recent account of the relationship between happiness (subjective well-being’/SWB) and wealth in the psychological literature (it’s just the abstract.Sadly the full article is beyond the pay-wall.)

    Basically SWB has two main measures – one for life satisfaction and one for affect (i.e., feelings/mood/happiness’). Across the world, life satisfaction increases with increasing wealth but ‘happiness’ doesn’t have that kind of positive relationship with wealth – it is more related to the quality of social relationships.

    In a culture that puts value on success via wealth then, unsurprisingly, people who achieve more wealth feel more ‘satisfied’. But, that says nothing about their happiness (I’m summarsing.)

    BTW, Diener is probably the ‘father’ of the SWB literature.

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