Why Money Doesn’t Buy Happiness

Author: Sharon Begley, senior science writer at STAT, the life sciences publication of
the Boston Globe
Published in Newsweek magazine in October, 2007

Economists and psychologists—and the rest of us—have long wondered if more money
would make us happier. Here's the answer.

All in all, it was probably a mistake to look for the answer to the eternal question—"Does
money buy happiness?"—from people who practice what's called the dismal science. For
when economists tackled the question, they started from the observation that when people
put something up for sale they try to get as much for it as they can, and when people buy
something they try to pay as little for it as they can. Both sides in the transaction, the
economists noticed, are therefore behaving as if they would be more satisfied (happier, dare
we say) if they wound up receiving more money (the seller) or holding on to more money
(the buyer). Hence, more money must be better than less, and the only way more of
something can be better than less of it is if it brings you greater contentment. The
economists' conclusion: the more money you have, the happier you must be.

Depressed debutantes, suicidal CEOs, miserable magnates and other unhappy rich folks
aren't the only ones giving the lie to this. "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."

That flies in the face of intuition, not to mention economic theory. According to standard
economics, the most important commodity you can buy with additional wealth is choice. If
Wealth you have $20 in your pocket, you can decide between steak and peanut butter for dinner, but
if you have only $1 you'd better hope you already have a jar of jelly at home. Additional
wealth also lets you satisfy additional needs and wants, and the more of those you satisfy
the happier you are supposed to be.

The trouble is, choice is not all it's cracked up to be. Studies show that people like selecting
from among maybe half a dozen kinds of pasta at the grocery store but find 27 choices
overwhelming, leaving them chronically on edge that they could have chosen a better one
than they did. And wants, which are nice to be able to afford, have a bad habit of becoming
needs (iPod, anyone?), of which an advertising- and media-saturated culture create endless
numbers. Satisfying needs brings less emotional well-being than satisfying wants.

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. In a typical survey people are asked to rank their sense
of well-being or happiness on a scale of 1 to 7, where 1 means "not at all satisfied with my
life" and 7 means "completely satisfied." Of the American multimillionaires who responded,
the average happiness score was 5.8. Homeless people in Calcutta came in at 2.9. But
before you assume that money does buy happiness after all, consider who else rated
themselves around 5.8: the Inuit of northern Greenland, who do not exactly lead a life of
luxury, and the cattle-herding Masai of Kenya, whose dung huts have no electricity or
running water. And proving Gilbert's point about money buying happiness only when it lifts
you out of abject poverty, slum dwellers in Calcutta—one economic rung above the
homeless—rate themselves at 4.6.

Studies tracking changes in a population's reported level of happiness over time have also
dealt a death blow to the money-buys-happiness claim. Since World War II the gross
Related to
domestic product per capita has tripled in the United States. But people's sense of social Class
well-being, as measured by surveys asking some variation of "Overall, how satisfied are you
with your life?," has barely budged. Japan has had an even more meteoric rise in GDP per
capita since its postwar misery, but measures of national happiness have been flat, as they
have also been in Western Europe during its long postwar boom, according to social
psychologist Ruut Veenhoven of Erasmus University in Rotterdam. A 2004 analysis of more
than 150 studies on wealth and happiness concluded that "economic indicators have glaring
shortcomings" as approximations of well-being across nations, wrote Ed Diener of the
University of Illinois, Urbana-Champaign, and Martin E. P. Seligman of the University of
Pennsylvania. "Although economic output has risen steeply over the past decades, there has
been no rise in life satisfaction … and there has been a substantial increase in depression
and distrust."

That's partly because in an expanding economy, in which former luxuries such as washing
machines become necessities, the newly affluent don't feel the same joy in having a
machine do the laundry that their grandparents, suddenly freed from washboards, did. They
just take the Maytag for granted. "Americans who earn $50,000 per year are much happier
than those who earn $10,000 per year," writes Gilbert, "but Americans who earn $5 million
per year are not much happier than those who earn $100,000 per year." Another reason is
that an expanding paycheck, especially in an expanding economy, produces expanding
aspirations and a sense that there is always one more cool thing out there that you Economic
field
absolutely have to have. "Economic success falls short as a measure of well-being, in part
because materialism can negatively influence well-being," Diener and Seligman conclude.

If money doesn't buy happiness, what does? Grandma was right when she told you to value
health and friends, not money and stuff. Or as Diener and Seligman put it, once your basic
needs are met "differences in well-being are less frequently due to income, and are more
frequently due to factors such as social relationships and enjoyment at work." Other
researchers add fulfillment, a sense that life has meaning, belonging to civic and other
groups, and living in a democracy that respects individual rights and the rule of law. If a
nation wants to increase its population's sense of well-being, says Veenhoven, it should
make "less investment in economic growth and more in policies that promote good
governance, liberties, democracy, trust and public safety."
Marital
(Curiously, although money doesn't buy happiness, happiness can buy money. Young people status
who describe themselves as happy typically earn higher incomes, years later, than those
who said they were unhappy. It seems that a sense of well-being can make you more
productive and more likely to show initiative and other traits that lead to a higher income.
Contented people are also more likely to marry and stay married, as well as to be healthy,
both of which increase happiness.)

If more money doesn't buy more happiness, then the behavior of most Americans looks
downright insane, as we work harder and longer, decade after decade, to fatten our W-2s.
But what is insane for an individual is crucial for a national economy—that is, ever more
growth and consumption. Gilbert again: "Economies can blossom and grow only if people
are deluded into believing that the production of wealth will make them happy … Economies
thrive when individuals strive, but because individuals will strive only for their own happiness,
it is essential that they mistakenly believe that producing and consuming are routes to
personal well-being." In other words, if you want to do your part for your country's economy,
forget all of the above about money not buying happiness.