Does money make you happy?

The money-happiness link

The money-happiness link

Much has been said about whether money can buy you happiness; in advance of his book on the subject, colleague and fellow economist Dr Carlos Cortinhas examines some new research on the subject:

Common wisdom has always maintained that money can’t buy you happiness. But science, as it turns out, says otherwise. According to the widely cited work of Richard Easterlin, money does make you happy but only up to a point. Wealth beyond a certain amount does not make us happier: once we’ve achieved a reasonable degree of financial security (internationally, an annual income of roughly $15,000 per year) our basic needs are met and our sense of wellbeing does not improve as income rises. Or so studies by Easterlin and his followers have suggested.

A recent paper by Daniel Sacks, Betsey Stevenson and Justin Wolfers suggests that Easterlin and his followers got it wrong. After poring over data from 140 countries, they concluded that rich people are happier than poor people, people in rich countries are happier than people in poor countries and when countries get richer their people tend to get happier. Therefore, it appears that the happiness effect isn’t relative; it is based on a person’s absolute income.

These results stand in opposition to a number of previous studies on money and happiness that suggested that people were concerned only with the wealth of their next door neighbours. So, if you were keeping up with – or better yet, surpassing – the Jones’s you were fine. By that logic, people in impoverished countries could be happy if they were just a little bit better off than those around them. That conclusion was very appealing to people from prosperous nations.

The data for these studies invariably comes from large scale surveys such as the World Values Survey or the Gallup World Poll that include questions like “All things considered, how satisfied are you with your life these days?” or “Taking all things together, how would you say things are these days—would you say you’re very happy, quite happy, not very happy or not at all happy?”. These answers can then be transformed in a scale that allows for international comparisons and for the study of changing trends over time. An example of this is the findings in the World Values Survey, which has compiled data from over 350,000 people in 97 countries since 1981. This survey found that Denmark is home to the planet’s most contented citizens with Zimbabwe being home to the most miserable.

Source:
Adapted from “Subjective Well-Being, Income, Economic Development and Growth”, NBER Working Paper no. 16441 (October 2010), “The Data Is In, More Money = More Happiness: Justin Wolfers”, (January 2011) at: http://blogs.cgdev.org/global_prosperity_wonkcast/2011/01/18/the-data-is-in-more-money-more-happiness-justin-wolfers/
Survey Says: People Are Happier” (August 2008), Bloomberg BusinessWeek at: http://www.businessweek.com/globalbiz/content/aug2008/gb20080820_874593.htm

13 comments to Does money make you happy?

  • Richard V

    What does this do for the traffic/tunnel lane theory. Also, what about increased social tensions from increased inequality. eg. High gini countries v low gini countries of the same GDP. Examining the sum happiness in those would be interesting, would it total the same?

  • Gillies Kleboe

    Interestingly there was an international study done this month (Sept 2011) where they surveyed children around the world about what made them the happiest. Across the world the answer was ‘spending time with their family and friends), but in the UK they found a disproportionately large number of children saying their games console or mobile phone. The explanation from the researchers was that despite the prosperity of the UK, people tend to work long hours and spend relatively little time with their children as a result. Therefore parents feeling guilty about the lack of contact with their children gave gifts and material possessions as a way to compensate their absence. This was a very revealing and tragic piece of research for the UK and I think it spells a society under too much pressure. I hear Canada is better!

  • I always use this phrase.
    “Always make sure that your net happiness is greater than your net income”

  • For this reason I recommend using wire conduits to hide any exposed cables.
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  • I think more than money it has to do with what makes one happy. We tend to think that money is the answer to happiness, but it isn’t.

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  • These results stand in opposition to a number of previous studies on money and happiness that suggested that people were concerned only with the wealth of their next door neighbours. So, if you were keeping up with – or better yet, surpassing – the Jones’s you were fine. By that logic, people in impoverished countries could be happy if they were just a little bit better off than those around them. That conclusion was very appealing to people from prosperous nations.

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