Revisiting the Question of Whether Money Buys Happiness

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One point I’ve talked about frequently on The Simple Dollar was whether money can buy happiness.

In the past, I’ve subscribed strongly to the evidence proposed by author Daniel Gilbert in his book Stumbling on Happiness where he claims that an income level above $40,000 does not actually increase a person’s happiness to any noticeable degree. Economist Daniel Kahneman argues a similar thing, but raises the necessary income level to $75,000 per year.

In other words, once a person’s needs are covered, additional income mostly goes to covering wants, which, beyond a very initial level, doesn’t lead to additional happiness in life.

Recently, though, a new study by Betsey Stevenson and Justin Wolfers, as described in this Forbes article, adds an interesting new element to the mix:

Relying on worldwide data from Gallup and other sources, Stevenson and Wolfers determine that the wealthier people are, the more satisfied they are with their lives, at least when you look at nationwide figures. They also find, contrary to what many economists believe, that there is not a point of wealth satiation beyond which happiness levels off.

In other words, if you compare nation-by-nation data, the data indicates that there is a direct relationship between happiness levels in a nation and average income levels in a nation. The higher the average income level, the higher the happiness in that nation. Furthermore, there’s no “peak” to this relationship – happiness keeps going up as a nation’s average wealth goes up.

The average person in a wealthy nation, like the United States, is happier than the average person in a poor nation, like Somalia, for example.

My take on these studies is that they don’t contradict each other, although it might seem so on the surface.

Instead, I believe that happiness, on some level, comes from the people that you care about most. In a nation where almost everyone has their basic needs met, happiness is going to be higher because the people you care about most are all in good shape.

It’s often said that you are very similar to the average of your five closest friends. So, let’s say that you make an average salary – $50,000 a year or something like that. That would mean that the people you care about most earn that much on average as well.

In other words, not only are your basic needs fully met, but so are the basic needs of the people you care the most about.

In a nation with a much lower average income, the average worker might not be earning enough to cover all of his or her basic needs or wants. In that case, an average worker will have a lot of people in his or her life that are not meeting their basic needs, dragging down their collective happiness.

What’s the big idea here? If you work hard and earn a strong salary, it’s likely that your social circle will eventually include many others who also earn a strong salary. In some nations, that’s easier than others.

If you’re surrounded by people who have their basic needs met and they can take care of some of their wants, too, you’re going to be surrounded by happier people, on average, which will in turn help to make you happier.

This isn’t just a method of patting ourselves in the back for living in a nation with a high standard of living. It’s also motivation to work hard. If you work hard and focus on translating that hard work into an income that can cover your needs and many of your wants and you use that experience to build a social circle, you’ll not only bring yourself internal happiness, but you’ll naturally surround yourself with happier people, which helps even more.

In that sense, a higher income does bring about more happiness. It increases the likelihood that most of – if not all of – your friends are happier than the average, which lifts you up as well.

Note, of course, that this is simply my own theory regarding these studies, but I think it matches up well with what I’ve observed in my own life and the life of others around me.

The friends I’ve stuck with in life tend to have similar interests and similar habits and similar work ethics as my own, so it’s unsurprising that, on average, we’ll attain similar levels of happiness and that our happiness rubs off on each other.

We’re simply lucky to live in a place in the world where our hard work can translate into enough income to meet our needs and some of our wants.

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