The Truth About Money and Happiness

Sherri Fisher, MAPP '06, M.Ed., is an executive coach and learning specialist with a mission to uncover the gifts of greater motivation and focus that can improve competence, choices, and self-direction. She knows from decades of experience that it’s not how hard a person tries that leads to success; it’s how they try harder that matters most. Sherri has coached thousands of student and young adult clients to unleash previously hidden strengths. Full Bio. Sherri's articles are here.

Positive Psychology is not without its critics who wonder why we need to have empirical data that something works if it seems to work fine without knowing about constructs and statistical significance. Others wonder how one could ever really parse the components to effectively extract the “drop” of truth, especially since the effect of interventions can vary widely. That is what researchers set out to do, capture that drop, and for those of us who work in the “applied” part of the field, we must keep a careful eye on what new discoveries say about established ideas. That means reading beyond the general media to the actual studies that are sensationalized in the news.

Can Money Buy Happiness?

Above is the world happiness map which shows by country where in the world the happy people are. A new study from the Wharton School of Business at the University of Pennsylvania seems to refute a widely held intuitive belief as well as one that has been well-researched. Despite what you may have believed, according to the new study, it turns out that money CAN buy happiness. Or maybe it says that money DOES buy happiness. Well, maybe both, but not exactly either, it turns out if you read the actual study and understand its constructs.

Here’s what is being challenged. The seminal study by Dr. Richard Easterlin says this: “Within countries there is a noticeable positive association between income and happiness—in every single survey, those in the highest status group were happier, on the average, than those in the lowest status group.” Was this caused by money? No, according to Easterlin. “People tend to compare their actual situation with a reference standard or norm” so it’s not really the amount of money one has but how close it is to the reference group. (This is called social comparison, and it is responsible in part for not only how happy we are when it comes to perceptions of wealth and status, but also intelligence, success, beauty—nearly anything about a person, including possessions, that has value to others.) In a country which is experiencing economic growth (this study looked at post-WWII Japan, for example), Easterlin showed that happiness increases with income, but only up to a certain point, after which it is tied to one’s genetic set-point and adaptation. This has been widely interpreted as “Money cannot buy you happiness.”

What the new study says is this: Subjective well-being (SWB) is higher on average in wealthier countries. There is not an adaptation effect as previously believed, as SWB continues to increase with growing income. There is a statistical link—a correlation—between income and happiness. In other words, if you enjoy a higher material standard of living, you are more likely to have a higher underlying state of “chronic” happiness. The generalized conclusion is that if you live in a wealthier nation you are more likely to be happier (have higher SWB) than someone in a poorer nation.

This measure of SWB is not the same as moment-to-moment happiness which varies widely, of course. We call that experienced happiness. You might live in one of the “happy” countries, and have a high level of material comfort and not be happy from moment to moment in your life, but when asked about your overall life satisfaction you might rate it as fairly high, especially if you are comparing yourself to someone with a lower standard of living.

The Happiness Gap

So what should you do now that you know that there is a correlation between happiness and income? Should you try to increase your wealth to become happier? No, not yet, because there is another study, and this one out of Princeton looks at experienced happiness, the “real time” or “on-line” emotion that you experience throughout daily activities, averaged over time. (Hear the researcher interviewed!) Keep in mind that one’s experiences over time may seem as if they would be the same as chronic happiness, but they aren’t. This is the “Happiness Gap.”

Remember that happiness is not caused by one thing. Studies show that about 50% of individual differences in happiness are determined by genes, 10% by life circumstances, and 40% by our intentional activities. Those specifics of how you spend your time have a much greater effect on your real-time happiness than how much money you make. What you do with that money does matter. Keep in mind that people overestimate the impact of an increase in income. Even lottery winners return pretty closely to their pre-winner happiness, despite a major increase in wealth. And our favorite in Positive Psychology…Other People Matter (covered earlier in articles including Advice from the Tribesmen… by Lucy Ryan, How do you share positive psychology with strangers? by Sulynn, Honoring Our Relationship with Time by Iris Marie Bloom, and The Happy-Well… by Sherri Fisher). Happier people socialize more with friends and family. They focus less on the objective measures, such as income, and more on what they do in—and with—their lives.

Despite a positive correlation between income and happiness, it is still unknown what economic measures could be used to clearly show what causes higher SWB in wealthier countries, so don’t give up your work–life balance just yet! Is it broad measures of economic development, changes in output such as GDP or productivity that drive individual happiness? Is it the availability of the things money buys like high quality health care or education? Is it the luxury cars, vacations and fine dining? (Advertisers hope so!) The authors of the new Wharton study say this: “Unfortunately, we lack the statistical power to resolve these questions…We should note that our analysis has largely focused on establishing the magnitude of the bivariate relationship between subjective well-being and income, rather than tracing the causal effects of income on happiness. We believe that further research aimed at better understanding the causal pathways will be fruitful.” Stay tuned.

The Truth

So what’s the real truth about money and happiness?

We don’t know exactly why, but it seems that people in wealthier countries are happier than ones in poorer countries; within countries wealthier people are happier than poorer ones; and economic growth in a country is correlated with happiness. If you are living in an affluent nation, be grateful you’re happy, and if you are not happy, remember that you can do something about that today. Here are some ways to get you started:

* set goals
* be more grateful
* use your strengths
* practice real-time resilience
* become more mindful
* identify your pathways and agency
* savor…

Finally, here is a way to find out how satisfied you are with your life by looking at your own chronic happiness. This is the most widely used measure of its kind.

___________________________________________________
The Satisfaction with Life Scale***
By Ed Diener, Ph.D.

DIRECTIONS: Below are five statements with which you may agree or disagree. Using the 1-7 scale below, indicate your agreement with each item by placing the appropriate number in the line preceding that item. Please be open and honest in your responding.

1 = Strongly Disagree
2 = Disagree
3 = Slightly Disagree
4 = Neither Agree or Disagree
5 = Slightly Agree
6 = Agree
7 = Strongly Agree

______1. In most ways my life is close to my ideal.
______2. The conditions of my life are excellent.
______3. I am satisfied with life.
______4. So far I have gotten the important things I want in life.
______5. If I could live my life over, I would change almost nothing.

***Take it here and get your score.

Images: clipart images and map.