Money Can and Can’t Buy Happiness

February 17, 2007  

In past blog entries, I discussed my studies on money and its relationship to happiness. My conclusion: making more does not necessarily increase your level of happiness – but it can.

If you want to plow through a 50 page research study by Stutzer and Frey on this topic, you will gain an in depth understand of why this is so.

Here’s my interpretation of what they discovered:

It’s not the absolute amount of money you make that matters. It is how much money you make relative to “your financial aspirations,” which are sometimes driven by how much others make. Unfortunately, the more you make, the more you adapt, and the more you want. Higher income levels provide only fleeting happiness, and is typically replaced by the desire for more.

Ok, these are my words. Here is the conclusion by Stutzer and Frey in their words:

In line with common thinking, it is found that, at a particular point-of-time, and within a particular country, higher income is associated with higher individual happiness.

In contrast, higher per capita income in society seems not to raise reported satisfaction with life in rich western countries. Even at an income level half that of the United States, there are only small effects of higher average income on subjective well-being.

Both observations can be explained if individual aspirations are included as an argument in people’s “utility functions”.

Income is understood to affect individual well-being relative to people’s aspiration levels, whereby processes of adaptation and social comparison form people’s aspirations. We argued and provided evidence for Germany that, on the one hand, individual adaptation to changes in one’s own income is incomplete and thus allows for positive effects of higher income levels on subjective well-being. On the other hand, complementary processes of social comparison lead average aspirations to grow overall in line with average income.

What does this mean relative to Goal-Free Living? Make enough money to cover your needs and most basic desires. Then “want what you have” (secret #4 from Goal-Free Living). If you can’t pay your bills, then some discipline might be what is needed. However, if you are making 10% more than you need, your desire for more may be thwarting your happiness.

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2 Responses to “Money Can and Can’t Buy Happiness”

  1. Eolake Stobblehouse on February 19th, 2007 10:21 am

    I couldn’t agree more. It really did buy me some happiness to get out of having to worry about money all the time. But after I arrived at a comfortable level, I gradually lost interest in earning more.

  2. Eolake Stobblehouse on February 19th, 2007 10:21 am

    Oh, by the way, I once wrote an article which helped many:

    http://stobblehouse.com/text/on-money.html