Mo’ Money, Less Problems

For decades psychologists and economists alike have debated the relationship between money and happiness. Despite arguments on both sides, it is foolish to believe that money is not a factor related to happiness. In most modern societies one cannot fulfill their basic human needs without some form of currency; therefore money is essential to basic happiness. Money can lessen the burden on life through eliminating unnecessary stress attributed to a lack of capital. Once our basic needs are met, the relationship between wealth and happiness changes—with larger amounts of money there are more opportunities to gain experiences that lead to improved happiness. Money itself doesn’t buy happiness; rather it is the way the money is spent that can influence an individual’s quality of life. To put it simply, using money wisely can buy happiness.

When it comes to money and happiness, correlation does not imply causation. Economist Justin Wolfers explores this relationship in his article about the connection between money and happiness. Wolfers states “Wealthier people are happier than poor people” he goes on to state “The relationship between income and happiness is extremely strong,”. Wolfers is correct in saying that money is the reason for an increase in life satisfaction because people with money are able to provide themselves with basic human needs and experience less financial hardships than those without. According to The Gallup Organization’s study on income related happiness, the happiest people lived in countries that were “relatively wealthy, peaceful, liberal countries in which citizens had access to healthcare, family time and education”. An individual whose basic human needs are met has a much higher level of happiness compared to an individual who does not have access to his or her basic human needs. Wealth is related to happiness in that it allows us to provide ourselves with the bare necessities of life.

Research has shown that the wealth of a nation is a strong indicator of the life satisfaction of its citizens. According to the Gallup World Poll rich countries are happier than poor countries, and as countries get richer they get happier. Individuals within these wealthy countries are more likely to score higher on average satisfaction surveys as compared to their poorer counterparts . This suggests that individuals with more financial flexibility tend to be happier. According to a graph by Wolfers and partner Betsey Stevenson, the USA leads other large countries in happiness to income ratios. A common trend with these countries is that as the average annual income goes up, the average life satisfaction is generally higher.

The Pew Research Centre released their own graph scoring citizens’ levels of happiness of various rich, poor, and emerging countries. Rich countries scored highest. Emerging countries such as Mexico and Vietnam scored relatively high while war torn, non-industrialized countries such as Ghana scored substantially lower. This shows that emerging countries with growing economies are able to increase their level of happiness. Another graph by Wolfers and Stevenson measures the happiness to income ratios in America alone. Americans with annual incomes of around $120,000 score themselves as being significantly happier than those with incomes of around $13,200. Citizens with stable incomes in more affluent countries have more money to spend on enjoyable activities which explains why richer countries are generally happier.

After accounting for basic human needs ‘excess’ amounts of money can be used for other opportunities in life. Researcher Elizabeth Dunn and her colleagues conducted an experiment where participants were given $5-$20 and instructed to spend the money on themselves or on others; afterwards their levels of satisfaction were measured. Those who spent their money on others were significantly happier than those who spent it on themselves; regardless of the amount of money they received. This suggests that spending money on others rather than on material goods correlates with rising happiness. Studies done by researcher Leonardo Nicolao found in various experiments that money spent on experiences such as vacation are more profitable to life satisfaction compared to material goods as long as the experience was enjoyable. In order to experience such activities, one must have an ample amount of money to spend. Choosing the best activities and people to spend money on can lead to a more enjoyable life.

In 1974, economist Richard Easterlin stated that higher incomes do not necessarily make people happier, which later became known as the Easterlin Paradox. At the time, Easterlin’s statement was widely accepted by economists, but over many generations their opinions have changed. Money in fact does matter, but studies have shown that this soon drops off. Economist Angus Deaton and psychologist Daniel Kahneman concluded that happiness does raise until an annual income of $75,000 is met. The reason for this is that once an individual makes $75,000, all basic human needs can be paid for along with other life activities. Easterlin’s statement has been proven wrong by modern day economists, but his conjecture served as a starting point for many more studies.

The relationship between money and happiness is a thin one. Large amounts of money do correlate with a growing life satisfaction, but it is what this money is spent on that truly matters. ‘Money can’t buy happiness’ is an untrue statement in that currency is used as a tool for survival to provide shelter and food while also allowing to experience beneficial activities in all modern societies. “Don’t let an economist bully you into believing money’s all that matters. And don’t let a psychologist bully you into believing that money is completely unimportant,”. These two sentences explain that money on its own is not enough to bring joy, but it is also the reason that joy can be reached.