A Summary of Recent Research on Money and Happiness

First, you have to remember that there is a major problem with defining "happiness". Does it mean how good or bad you feel right now, or how satisfied you feel with your life when you sit back and reflect?

Recent surveys of hundreds of thousands of people in over 150 countries show that richer people report being more satisfied with their lives overall, but that the richer you become, the more money you need to increase your satisfaction further. This is because people spend money on the most important things first. Someone earning $100,000 per year is only a little more satisfied than someone earning $50,000. The best available study found that each doubling of your income would increase your life satisfaction by about 0.5 points on a scale of 1 to 10.

If you look at how ‘happy’ people say they are right now the relationship is weaker. One large study found people in countries with average incomes of $32,000 were only 10% happier with their lives than those in countries with average incomes of just $2,000; another within the US could find no effect above a $40,000 income for a single person.

So money is sort of like having children, which does not make people happier moment to moment but  on reflection seems to make them feel better about their lives.

And, money is a proxy for a lot of other things: both mental and physical health make it easier to earn money, for example. Plus, many employers use money as a way to reward people who are good at their jobs, and maybe one reason people are better at their jobs is that they enjoy them more. This creates serious problems telling correlation from causation:

Moreover, some and maybe even most of this relationship is not causal. For example, healthier people will be both happier and capable of earning more. This means the effect of gaining extra money on your happiness is weaker than the above correlations suggest. Unfortunately, how much of the above relationships are caused by money making people happier is still not known with confidence.

Whatever effect money does have on happiness comes mostly at the bottom:

Once you get to an individual income of around $40,000, other factors, such as health, relationships and a sense of purpose, seem far more important than income. 

This can be hard to believe when you are really stressed about paying your bills, but the data are hard to ignore. I have spent some time wondering why. My experience of rich people is that they seem to find just as much to worry about as I do, or even more; that is, how much you worry is to some extent independent of how many problems you have. I have also noticed that people use money to insulate themselves from other people; poor people call their friends to help them move, but rich people call movers. But whatever the reason, it seem undeniable that money does a lot less to make us happy than you would imagine from its huge place in our society.