Having more money does not make you happier, according to figures released earlier this month from the UK’s Office for National Statistics (ONS). They show people there have become more anxious in recent years and have not become happier – despite seeing big jumps in disposable income and wealth.
“Despite high levels of employment, rising incomes and spending across UK households, people are not reporting increases in their well-being,” said Glenn Everett, head of inequalities with the ONS.
The ONS figures show that while there have been substantial increases in the disposable income of UK people since early 2012, people have become more anxious and are now on average only about 3pc happier than they were in 2012.
“Research has consistently shown us that while our real income levels and discretionary spending have soared over the years, our happiness levels have remained flat,” said Sibeal Wheatley, financial planning analyst at Davy Private Clients. However, even if rises in disposable income and wealth don’t lead to an increase in happiness, can we go as far as saying that money can’t buy happiness?
MONEY DOES MATTER
“Money can’t buy happiness, but it can create a secure context in which happiness is more likely to grow,” said Brendan Kelly, professor of psychiatry with Trinity College Dublin and a well-known mental health expert. “There is certainly a link between money and happiness. Poverty makes happiness very difficult. It is possible to be happy and poor, but this is difficult to sustain.”
Studies of the recent recession, for example, has shown the negative impact which a shortage of money can have on families. Many people saw their wages cut during the recession; many others saw their household income dive as a result of the unemployment of the breadwinnner.
Parents under economic strain during the recession reported more arguments, felt less close and were more likely to report that they were unhappy with their relationship, according to a study published in 2015 on the effects of the recession on families and children. The study, Growing Up In Ireland, found that such economic strain sours the relationship between partners – as well as creating harsher, less warm parenting. Such poor relationships between parents and children were found to be hugely damaging to child mental health and to increase levels of child anxiety.
MONEY ONLY BUYS HAPPINESS UP TO A POINT
Having said all this, even if there is a link between money and happiness, it’s only up to a certain point. “Once your basic needs for accommodation, food, security and so on are met, money does not increase happiness infinitely,” said Kelly. “There are diminishing returns – earning €1m when you have just €1 in the bank will make you much happier than earning €1m when you already have €100m in the bank.”
A number of studies have been conducted which have tried to pinpoint the amount of money which individuals need to earn to be happy.
For example, money can make you happy up to the point that you earn between $60,000 (€53,000) and $75,000 (€66,000) a year, according to a study published in February 2018 by Perdue University in the US state of Indiana. The study, which examined the point at which your income no longer has an effect on your emotional well-being, was based on a survey of 1.7 million people from 164 countries. The amount of money needed for people to feel happy varied depending on where the individual was from and who the individual was. However, once that amount was earned, further increases in income tended to be associated with reduced life satisfaction and lower well-being. This is because at that stage, people may have been driven by desires such as pursuing more material gains and comparing themselves to others – which could in turn lower well-being. The study also found that the amount of money needed to feel happy is higher in wealthy countries.
The findings were similar to those of another one conducted in 2010 by Princeton University. In that study, researchers put a figure of $75,000 (€66,000) a year on the amount an individual needed to earn to be happy. The lower an individual’s annual income falls below that figure, the unhappier he or she feels, found the study. However, people who earned more than €66,000 didn’t report any greater degree of happiness – no matter how much more money they earned.
NEIGHBOUR’S PAY MAY MATTER MORE
Even if you’re earning enough money to meet your basic needs, the amount that your neighbour or peer earns can however have more of an impact on how satisfied you are with your income – and how happy you feel about your status in life – than the actual size of your pay packet. “A majority of people think it’s more important to earn more than their neighbour earns, rather than increase the absolute amount that they earn themselves,” said Kelly. “The root of most human happiness lies in comparing ourselves with others – or with how we imagine we should be. Money is often central to such comparisons.”
This is probably why some studies have found that income inequality can lead to unhappiness. Americans for example were on average happier in the years when there was less income inequity in the US – than in the years when there was more national income inequality, according to a study conducted by the Association for Psychological Science in the US. The study, which examined survey data from 1972 to 2008, found that Americans trusted other people less and perceived other people to be less fair in the years when there was more income inequality in the US than in the years when there was less.
YOUR AGE MATTERS
Age can also come into play. “Happiness varies with age – with the youngest and oldest experiencing greatest happiness,” said Kelly.
“For many, the low point occurs in the early to mid-40s – when professional and personal lives are at their most intense, and financial demands at their highest. This U-shaped distribution of happiness across the course of life has been reported in the US, Europe, Latin America and Asia – in over 70 developing and developed nations.”
Money is one part of happiness equation
Money – or the lack of it – is just one of the things which can influence happiness. Your own personality, personal beliefs and values also have a big part to play.
“The link between money and happiness is strong but complex,” said Kelly.
“Seeking money as a route to happiness is unwise. We should look to money to bring financial security. It can be helpful for happiness too, but it is not a reliable or sustainable basis for happiness.
“A sudden health problem, for example, can impact on happiness so acutely that all the money in the world would no longer bring happiness – indeed, you would suddenly be willing to spend all your money to pay for a cure.
“Money can be a tool that we can use to help us attain greater well-being through lifestyle (such as exercise and diet), relationships with others and with the world, and meaningful activity. Happiness will follow.”
TIME AND SPENDING
How you spend your money matters
What you spend your money on can have a big part to play in the amount of happiness it can or cannot bring. Using your money to indulge in bad habits — such as gambling and excessive drinking — will clearly make you, and others close to you, unhappy. Furthermore, buying material things is unlikely to make you happy, but spending your money on experiences could. That’s according to Eoin McGee, principal of Prosperous Financial Planning and the financial advisor on RTE’s How To Be Good With Money show. This is because an experience is likely to have a greater positive emotional impact on you than a material item.
“The anticipation of an experience, such as a holiday, is at least half of the experience itself,” said McGee. “On top of that, you have the enjoyment of the experience, and the memory of that experience. This is very different to using your money to buy something tangible. You probably don’t remember the iPhone you bought a year ago, but you would remember the holiday.”
Using your money to buy things can often trigger anxiety, according to McGee. “If you buy a brand new car, you could be worrying about scratching it,” said McGee. “If you order something online, you might worry if the item will live up to your expectations when it’s delivered. This anxiety can take the good out of buying something.”
Another way which McGee believes that money can buy happiness is if some of it is spent on others. This tallies with the findings of a study conducted in the US a few years ago. The study, by the University of British Columbia and Harvard Business School, found that spending as little as $5 (€4.40) a day on someone else could significantly boost an individual’s happiness.
Time matters
Many of today’s workers class themselves as cash-rich but time-poor. This lack of spare time can have a bad impact on health and well-being. When making decisions about money and time, it’s important to think about the long-term consequences of those decisions for your happiness, according to Dr Ashley Whillans, assistant professor at Harvard Business School in the US.
“If we choose a job in which we make a lot of money but work 80 hours a week, our personal relationships and happiness could suffer in the long-term,” said Whillans in an article published in the Harvard Business Review last month. College students who pursue careers which enable them to have more money, rather than time, experience big falls in happiness one to two years after graduation, according to research by Whillans. “Over the span of many years, the negative effects of such major life decisions could really add up,” he said.
One way to deal with the challenge of being cash-rich but time-poor is to use your money to buy more ‘happy’ time. This doesn’t just mean to go on holidays more. Whillans advises people to use their money to eliminate negative experiences from their day. Hiring a cleaner to clean your home, for example, could free up a few of your hours over the weekend. Ordering something online and paying for delivery of the item to your home could save you a few hours’ travel and shopping time. “Once you have outsourced chores, devote your new free time to things that are most likely to promote happiness, like activities with your friends and family,” said Whillans.
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