Does Money Really Buy Happiness?
"A large income is the best recipe for happiness I ever heard of," the novelist Jane Austen once said. And, as it turns out, Austen may have been right — to an extent. A recent study (via Reuters) indicates that increasing one's income up to about $75,000 per year lessens life's stresses. (See also: 5 Ways Money Can Buy Happiness)
In other words, more money up until that point allows one to buy things that increase emotional well-being. For example, if I increase my salary from $35,000 to $75,000 per year, I would be able to save for retirement, afford my medical prescriptions without a great deal of stress, and hire a cleaning lady so I could spend more time with my children. (This is all theoretical, of course. I have no children, so no great need for a cleaning lady — yet!)
Whether money makes you happier also depends on your income in comparison to your peer group, rather than your ability to buy more things. Researchers Firebaugh and Tach argued in their paper, Relative Income and Happiness: Are Americans on a Hedonic Treadmill?, that this results in a never-ending comparison game, because one's income tends to rise with age (as does the rest of the peer group). It also means that as first-world countries grow wealthier, their residents aren't likely to be any happier, on the whole. Firebaugh and Tach did find that the greatest predictors of happiness were physical health, income, education and marital status.
Firebaugh and Tach's argument that there is no single predictor of happiness was recently supported by the results of a recent Gallup World Poll (via Web MD). The poll, which surveyed 136,000 people in 132 countries, found that happiness is determined by numerous factors, including expectations and culture. In other words, the question of whether you are happy depends in large part on how you define "happiness." The survey also found that the United States had the highest income of all the countries surveyed, but ranked 16th in life satisfaction (related to factors like feeling respected, having autonomy and having job fulfillment) and 26th on positive feelings.
In addition to there being numerous predictors of happiness (rather than income alone), there is evidence that money does not make you more generous. In fact, US families making over $300,000 annually donate just 4% of their income to charity and numerous other studies have shown that lower-income families give more of their income to charity than do high-earners.
So what does all of this mean? Bottom line: having enough money will make you happy, but having more money won't necessarily. My view is that it's essential to define happiness for yourself and then allocate your money in ways that will make you happy. In my case, what would make me happiest is being able to save 10% for retirement (which I do), having six months of emergency funds (which I don't) and paying off my credit cards (which I'm in the process of doing). After that, I'll be free to allocate money toward travel, which is one of my great loves in life! What about you? How do you view the relationship between money and happiness? Share your thoughts!