The relationship between money and happiness has long been studied by sociologists, psychologists, and economists. Indeed, we live in a society aimed at obtaining economic status. Therefore, working out if money leads to happiness is an interesting subject.
When looking at the studies on the relationship between money and happiness, it’s necessary to overcome any exceptionalities and find general rules that are seen repeatedly in different societies. Furthermore, it’s important to know what role money normally plays in life satisfaction in a capitalist society.
The most interesting studies concentrate on the difference between having money only to cover basic needs and having money as an option for power in society. This is a gap on which almost all studies between money and happiness are based.
Money and happiness: the basic needs
One of the earliest theories on the relationship between money and happiness was outlined by Richard Easterlin. He’s an economics professor at the University of Southern California (USA).
Professor Easterlin found that countries with higher median incomes are generally happier than countries with lower levels. In fact, he discovered that, as long as citizens have enough income to meet their basic needs, they tend to be happy.
Easterlin argued that life satisfaction rises with average income, but only up to a point. Beyond that, the marginal gain in happiness decreases. In a nutshell, the happiness-income paradox is as follows: At one point, both between and within nations, happiness varies directly with income but, over time, happiness doesn’t increase when a country’s income increases.
What exactly is ‘happiness’?
For authors such as Daniel Kahneman, happiness can be defined in terms of ’emotional well-being’ and ‘positive evaluation of life’. In turn, emotional well-being is understood as the daily feelings that people experience, such as happiness, sadness, stress, or anger. Evaluation of life refers to what perception people have about their lives when they reflect on them.
Having more money buys satisfaction with life, but not happiness. However, low income is linked to both low emotional well-being and low evaluation of life.
When people make a lot of money they feel more satisfied with the outcome of their life and less irritable, but that doesn’t mean they feel happy.
As a matter of fact, the peace of mind that comes with having one’s basic needs covered has more to do with human rights than with the scope of the feeling of happiness. Obviously, if you don’t have basic needs such as shelter or food, it’ll be extremely difficult to experience peace of mind and, thus a feeling of general happiness.
A study conducted by Elizabeth W. Dunn, Lara B. Aknin, and Michael I. Norton and published in 2008 in Science, concluded that money buys happiness, but only if it’s spent on someone else. In fact, the study discovered a direct correlation between the amount people spent on gifts for others and an increase in their feelings of accomplishment.
For a second study, the team surveyed employees at a company who’d just received profit-sharing bonuses. The amount of this bonus that workers spent on others predicted their happiness six to eight weeks later. On the other hand, the part of the bonus they spent on themselves had no effect on their happiness.
In a third study, the team gave research participants between five and 20 dollars and instructed them to spend the money on themselves or others. Then, their happiness was determined. The study found that those who spent their money on others were happier than those who didn’t.
It’s not how much you earn, but how you spend it
While researchers may have looked at this age-old question from various angles, they generally agree that happiness doesn’t depend so much on how much we earn, but on how we choose to spend it.
Therefore, can it be said that money buys happiness? Maybe, depending on how we spend it.
For instance, in your own life, you may have noticed that getting a raise or bonus didn’t make you happier in the long run. The initial euphoria quickly dissipated as you got used to the new pay.
Or, perhaps you found that buying the new smartphone or the latest gadget didn’t do much for your happiness. That doesn’t mean that it didn’t give you enjoyment, but that has nothing to do with your happiness in the medium-long term.
Keys to spending money as an investment in our well-being
Science claims that there are a few ways money can be spent that are guaranteed to give longer-lasting pleasure:
Buying more time
A UCLA study of 4,400 Americans showed that people who value time more than money are generally happier than those who don’t believe that having more time is better than having more money.
Imagine being able to hire a virtual assistant to handle those mundane tasks that tie you down or any other service that could free up your time. To give you time to spend on the things that really matter to you, like being with your family and friends or even just going for a walk with your dog and watching the sunset.
Spending on a dream experience
People mistakenly believe that buying things that last longer and even appreciate in value will keep them happy much longer than experiences. Nevertheless, in reality, you quickly get used to the new designer winter boots you once obsessed over. Although you might still enjoy wearing them, that initial rush of happiness you experienced in the first few weeks quickly fades.
However, a great experience like a vacation on an exotic island will remain in your memory for life. You’ll always remember those moments as a wave of pleasure. Indeed, experiences may be fleeting, but the joy they bring will last a long time. They’re the kinds of sensations and memories that can cheer you up when you’re feeling down and encourage you to organize similar experiences.
Spending on friends and family
You’ll feel greater satisfaction when you spend time and money on the people who really matter to you. After all, we’re all social animals and having healthy relationships with others is essential for our physical and mental health.
Spending money on experiences is more rewarding because you often share those good times with a spouse, friend, or family. Even going shopping together is more fun than doing it alone.
Why does it make us happy to spend money on others? Psychologists say it’s because it makes us feel good about ourselves. Giving to others enhances a loving and generous image of ourselves that makes us happy. It helps us connect more with them, and people with strong social ties are generally happier than people without.
To a certain extent, money contributes considerably to feelings of well-being. However, beyond that point, more money doesn’t necessarily translate into a happier person. Nonetheless, with conscious and correct spending, money can, indeed, buy a certain amount of happiness.
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