Can Money Buy Happiness?
We all dream of striking it rich, quitting our jobs, and living a happier life. However, more and more, I seem to hear stories about people working longer and longer because they don’t have enough money to retire. This got me thinking – how much money is enough? Or more accurately, how much money does one need to be happy?
The answer to this question, according to research conducted by Daniel Khaneman and Angus Deaton done at Princeton University, is that the average American sees no incremental increase in better moods, on a daily basis, when earning beyond $75,000 in total household income.
Even more interesting, is that research published in the journal of Positive Psychology, written by Lara B Aknin, Michael I. Norton, and Elizabeth W. Dunn, indicates that individuals earning over $55,000 a year are only 9% more happy than individuals earning $25,000 a year. Therefore, while it is true that earning more money can increase your overall happiness, the research also seems to suggest that when it comes to the relationship between money and happiness, the law of diminishing returns plays a larger role than most people realize.
After examining their research, Ankin, Norton, and Dunn, came to the conclusion that the average person works hard to maintain or increase their income because they overestimate the hedonic costs of earning lower levels of income. They also concluded that many people mistakenly believe that earning more money will lead to more happiness. Because of this, the average American seems to be spending longer and longer hours at work and sacrificing more and more of their leisure time. This is unfortunate, especially given that most of the research out there on how to be happier suggests that more time with friends and family, trying new things, and challenging yourself in activities outside of work, are the real keys to happiness.
Will More Money Make You Happier?
According to the Global Happiness Organization (GHO), the biggest influence on one’s happiness is one’s personality. If you have the type of personality where you don’t stress out over little things and you like spending time with people and being active, then you are likely to be happier than those of us that don’t have these qualities. The GHO website also states that unemployment has a clear negative effect on happiness, although it might not be for the reasons that many people would suspect. It turns out, unemployment’s negative effect on happiness has more to do with the lack of a social network and a lack of doing something meaningful than it does with income.
In fact, according to the GHO, standards of living within a given country affect variation in happiness by as little as 10-15%. This seems to be in line with other research on happiness and is also corroborated by the movement Action for Happiness that states on its website that income and environment only make up about 10% of our overall happiness. The other 90%, according to Action for Happiness, is made up of (1) genetic factors – 50%, (remember the discussion on personality), and (2) activities and relationships – 40%.
The main reason income and environment only make up 10% of our overall happiness is because of the hedonic treadmill, also known as the hedonic adaptation. The hedonic adaptation refers to the fact that as soon as your circumstances change, you adapt to these new circumstances and return to the baseline level of happiness (largely due to your personality) that you had before you encountered these new circumstances. So if you get a higher paying job, for example, you are initially happy with this higher paying salary, but then you quickly adapt, get used to this higher salary, and return to your baseline level of happiness. The general thought is that once you have enough money to start meeting your basic needs, higher levels of income, as already discussed above, will produce less and less enduring levels of happiness.
Where you can make a real difference in your overall level of happiness, however, is that 40% figure that gets determined by your activities and your relationships. According to the GHO, people who have free time and spend this free time being active and taking part in physical exercise or social intercourse are more happy than people who don’t do these things.
Furthermore, recent research also suggests that changes (large and small) and variation in what you do on a daily basis are able to prevent the hedonic adaptation and lead to an enduring increase in overall happiness.
Finally, another way to try and prevent the hedonic adaptation (the main enemy of happiness) is to fully immerse yourself in something challenging, not for the money and not because you are forced to, but simply because it will enable you to forget the mundane problems you might face on a daily basis, enter an energized state of focus, and reward you with a sense of achievement and fulfillment (skiing down a particularly difficult run, for example). This final concept is known in positive psychology as flow. Flow is also often referred to as being in the zone. The term flow was coined by psychologist Mihaly Csikszentmihalyi, who has written a book on the topic – Flow: The Psychology of Optimal Experience.
How Money Can Buy Happiness
After reviewing all this research, it seems that money used to buy more stuff or bigger stuff doesn’t result in any sustained increase in an individual’s level of happiness. Money used to enable one to take part in new and exciting experiences or used to enable people to spend more time with friends and family, however, can.
To achieve this more ideal relationship between money and happiness, however, will mean breaking the keeping up with the Joneses mentality that many people subscribe to. Stop trying to keep up with the Joneses and start using your money to live new an exciting experiences. Better yet, given income plays a small role in happiness, try to save and invest more of it so that you can retire early and start doing more of the things that really make you happy.