Money Can Buy Happiness… To a Point. Maybe.

We’ve all heard it before: “Money can’t buy happiness”. And of course, this has been an interesting research topic for economists for a very long time. Is it true? Do people get happier as they get richer; or more miserable as they get poorer? Or maybe money can buy happiness…

Obviously, the saying has stuck around because there’s a ring of some truth to it, as well as it’s counter-intuitive first meaning (and the fact that the majority of people aren’t rich and it’s a nice way to cheer yourself up thinking that getting more wealthy wouldn’t help you out). Clearly if you’re homeless living on the streets without a penny to your name then you’re probably not quite as happy as someone like Bill Gates. You can’t meet your own basic human needs!

I think the interesting part, and the part economists try to tease out in their research, is whether or not there’s a point of “enough”. Meaning if people earn a high enough salary, they’re able to meet all their needs and many of their own wants – so at that point does additional money provide any additional happiness? And where would that point be? $60,000? $100,000? $250,000? $1,000,00? Who knows?

Well, there’s a name for this: it’s called the Easterlin Paradox. And the economists have been going back and forth over this since Easterlin first proposed the idea back in 1974. It’s back in the news again this week, because there’s a new working paper which is the latest rebuttal to the paradox. The Economist has a nice chart showing the latest data. The takeaway? Money does buy happiness, and they don’t see a “saturation point” where it doesn’t. The caveat being that happiness doesn’t increase at the same rate as income, but more slowly. But if you click over to the chart, you’ll see that the income scale tops out at $128,000 for their data.

First, I think it should be noted that while $128,000 in income is a good amount of income, but I found it all little odd that the data would stop there for the U.S. It’s not unheard of in our country to make more than that, especially in a dual-income household in a field like software, engineering, law, or medicine. Or even in the booming natural gas and fracking jobs we’re seeing in our energy boom. It’d be useful to see if there is a point where the trend stops at income levels above that.

Second, while income level is a great data point it totally ignores accumulated wealth: net worth. I’d imagine that while annual income is a relatively good proxy, that net worth would be a better determinant of happiness levels – at least when they relate to meeting needs and wants and providing financial security. But at that point you’d need to take into account the age of the respondents, since net worth will vary dramatically over a person’s lifespan.

Takeaways

So what does this mean? Well, it means that more money does actually make for an easier life and more self reported happiness. So it’s not entirely superficial or greedy to want to increase your own wealth – which is a viewpoint I’ve found many people expressing (particularly when I was younger and straight out of college). Sure, money for money’s sake is not an attractive trait. I’ve met many people who grow ever wealthier and become seemingly more insecure in their own financial position. This tends to coincide with a lifestyle focused on buying more and more expensive luxury goods as status symbols.

But to me, this reinforces my own personal viewpoint: money equals freedom. Freedom from worries about meeting basic needs. Providing for your family. Freedom in choosing what to do with your life. Who to work for. Freedom to walk on a job that doesn’t take advantage of your skillset or offer something back to you or the community.

2 thoughts on “Money Can Buy Happiness… To a Point. Maybe.

  1. Good article. I discuss this point in detail in my book, Financial Happine$$. The key is what a person does with the money that comes into their life and leaves their life. This is an issue worth studying in more depth. Nice job!

Leave a Reply

Your email address will not be published. Required fields are marked *