Creating a happy life for ourselves and our families is a top priority for most Americans. While the specific things that make us happy may be different for each of us, we all know happiness when we experience it: It’s that overall feeling of contentment that we are a living a purposeful, satisfying life.
The study of happiness dates back over 2,500 years (5th Century B.C.) to the Greek philosophy of Socrates, Plato and others, as well as the eastern religions, including Buddhism and Hinduism. Although the philosophers and religious leaders used different approaches, the common theme to achieving happiness boiled down to living an ethical, generous and grateful life. Stated differently, the route to happiness is grounded in our connections with others, not in the things we own or desire.
Like many of the teachings originating from ancient cultures, these ideas seem to be timeless and form the basis for much of the current research on the subject. Studying the causes of human happiness has moved from the realm of the philosopher to the domain of academic research and, most recently, into popular culture: Dozens of books and hundreds of articles are published every year teaching us how to be happy.
Like it or not, money plays a central role in American society. Earning more of it, and then figuring out what to do with it, is ingrained in our culture. Unfortunately, money has become the leading benchmark to measure “success.” Instead of assessing our worth based on how we live our lives and the impact we have on others, we increasingly measure it by the size of our paycheck or bank account. It’s no surprise then that studying the relationship between money (income, accumulated wealth, possessions, etc.) and happiness has become a hot topic for behavioral economists and psychologists.
Here’s where things get interesting. When surveyed about what would most improve the quality of their lives, consumers most frequently mention financial circumstances. Except for the very highest-income earners, most people answer, “more money.”
Even among researchers who disagree on some of the finer points, there is consensus on one fundamental principle: Broadly speaking, money does have an effect on a person’s overall satisfaction with life. Being poor is bad for happiness, and wealthy people, in general are happier than poor people. Beyond that, however, the link between money and happiness is nuanced.
One of the original studies in this area was done by economist Richard Easterlin in the early 1970s. This, and subsequent research over the last 40 years, including a study by Princeton psychology professor and Nobel Laureate Daniel Kahneman, looked at the effect of a rising standard of living on a household’s happiness. The results showed that while there is a link between how much a family earns and their sense of well-being, it’s not a strong one. Specifically, after a relatively low level of household income, future income gains do increase happiness, but not by much.
The main reason is that people spend money on the most important things first — food, shelter, medical care, etc. Once those needs are met, additional spending on luxuries generates only marginal added pleasure. For example, a household earning $100,000 is only a little more satisfied than one making $50,000. At very high income levels, the effects on well-being are even more muted. Americans who earn $1 million are only slightly happier than those who make $100,000. In other words, big jumps in income buy only small amounts of additional happiness. So, as you get richer, you need a lot more money to make you even a little more satisfied. Furthermore, even small increases in happiness are dependent on other factors.
In my next article, I’ll talk about three of the factors that are especially important and worth discussing.
John Spoto is the founder of Sentry Financial Planning in Andover and Danvers. For more information, call 978-475-2533 or visit www.sentryfinancialplanning.com.