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Does money buy happiness?

October 01, 2014

By Paul Brucker

Do you think having a lot of money generates happiness? There are three schools of thought on this issue:

• Yes
• No
• Yes or no depending on the context

Money buys happiness

The notion that money absolutely buys happiness was expressed in a Barrett Strong song that the Beatles covered in 1963: “Money (that’s what I want).” The lyrics say “The best things in life are free but you can keep them for the birds and bees. Now give me money, that’s what I want.” Later, the song continues: “Money don’t get everything, it’s true, but what it don’t get, I can’t use.”

The sentiment that money equals happiness was buttressed by a 2013 study by economists Betsey Stevenson and Justin Wolfers. “Wealthier people are happier than poor people,” Wolfers says. “Wealthier countries are happier than poor countries. As countries get richer, they get happier. The relationship between income and happiness is very strong.” The study’s findings: about 59% of Americans making less than $10,000 were “very happy” or “very satisfied.” Compare this to those making over $500,000 – a whopping 100% reported being “very happy” or “very satisfied.”

Wolfers adds that the word happiness itself is problematical. “People are imprecise in their language,” he says. He prefers to define happiness as “how you think about your life overall or how happy you are, taking all things together.” People with money are empowered to make choices, he says, and the more money you make, the more choices open up.

However, Wolfers admits that “an extra dollar doesn’t buy much extra happiness from a millionaire, but it buys quite a lot for a working-class person.”

Money does not buy happiness

On the flip side is the notion that money doesn’t buy happiness. This sentiment was expressed in the Beatles 1964 hit, “Can’t buy me love.” The lyrics are, in part, “I don’t care too much for money for money can’t buy me love” and “Tell me that you want the things that money just can’t buy.”

This disconnection between money and happiness was popularized by a landmark 1974 study by economist Richard Esterlin. He proposed a paradox: That income above a certain level does not increase well-being and that people in poorer countries (such as Sri Lanka and Nigeria) were happier than in richer countries (such as the United States and Germany) once their basic needs were met.

Emotional well-being increases with income up to $75,000 and then begins to level off, according to a 2010 study by Daniel Kahneman and Angus Deaton. But life satisfaction, the study argues, continues to get better: “High income buys life satisfaction but not happiness.”

Money may or may not buy happiness

Ready for school of thought No. 3? Money equals happiness based on context. The basic proposition: How you spend your money is more important than how much you spend. Sorry, no Beatles’ song comes to mind for this viewpoint.

People focused on becoming upwardly mobile are less happy than people who are not materialistic, according to another study – this one in 2011 by Brigham Young professor Jason Carroll. “Income level is different than materialism,” he notes, adding that couples who say money is unimportant to them fight less and enjoy more stable relationships.

Harvard Business School Associate Professor Michael Norton weighs in on the same side of the issue. “In general, we all believe that having more money is going to make us happier,” he says. “And, while it’s true that having more money doesn’t usually make us less happy, it’s also true that simply having more money doesn’t guarantee happiness. After all, most of us have a friend, family member, or coworker who is relatively wealthy who certainly doesn’t strike us as particularly happy…. people should stop thinking exclusively about how to get more money, and instead focus more on whether they are getting the most happiness out of the money they already have.”