Photo by Kat Yukawa on Unsplash

Money can do a lot for us. When we don’t need to worry about the price of our next meal, how to afford a home, and how much we need to save for a well-earned holiday, we are certainly better off. But when it comes to the relationship between money and happiness, things get a little more complicated. There is no straightforward answer to exactly how money impacts life satisfaction. So when you next think about how much happier you’ll be if you get a pay rise, or when you next give someone the advice that “money doesn’t make you happy”, you should know that you are partly correct and partly wrong.

For anyone interested in how money affects happiness, the first evidence you probably want to see is the correlation between how rich people are and how happy people are. You can look at this across several levels. First, in the differences between countries. Whether you include developed countries, developing countries, or countries going through major political transitions, scores of life satisfaction do not seem to increase with economic growth across countries. At least, not over long-term averages. When you look at year-by-year patterns within a single country, for example during a political transition from communism to capitalism, you can spot similar changes in GDP and life satisfaction during those specific years. When the economy crashes, people get relatively miserable. As it recovers, life satisfaction recovers with it.

We can also look at how happiness relates to household income. In the US, there is a weak but significant correlation between a person’s household income and their level of happiness. If you look under the skin of the correlation, you can spot plateaus in how much your happiness increases as you get richer. In 2004, if you made over $90,000 a year, you were almost twice as likely to say you were “very happy” than someone who made less than $20,000. But you’d be practically no happier than someone who made between $50,000 and $90,000. Of course household income can grow a lot higher than $90,000, and you find much steadier growth in life satisfaction if you look at household income on a logarithmic scale (i.e. rising by orders of magnitude rather than linearly). But keep in mind, there is a difference between the typical long-term life satisfaction measures and daily assessments of your emotional experiences. Although the way you evaluate your life in general rises steadily with log income, the way you specifically felt yesterday stops improving after you make around $75,000 (at least in 2008–2009). Above this level of income, you’re probably not going to be any freer to do the things that really make you happy on a day-to-day basis, like seeing friends, enjoying hobbies, and staying healthy. But your general level of life satisfaction seems more sensitive to how much money you have available.

Photo by rawpixel on Unsplash. Adapted by yours truly.

So the relationship between money and happiness is complicated at best. But what exactly could the downsides of money be? One possibility is that money negatively impacts your ability to appreciate and enjoy the smaller things in life — the fresh air in the park or the taste of chocolate. In one experiment, participants who were reminded about wealth and money spent less time eating chocolate, and found it less enjoyable, than people without such a reminder. In general, money mindsets seem to make people less prosocial and more business-like. In addition, those who are making more money are likely to be working more, rather than doing the leisurely things they daydreamed about before getting rich. You can probably see why these kinds of mindsets might not be the happiest.

To add to our burdens, we are creatures who very quickly adapt to new gains and successes in our lives (one of my previous articles goes into our adaptive brains in more detail). This means that a pay rise might make us happier for a few weeks, but as our spending increases and our ambitions drift towards even bigger and better things, we begin to lose that brief spurt of happiness we enjoyed. Even worse, we love to compare ourselves to other people. In times of greater inequality in the community, those at the bottom are likely to feel cheated, which leads to an overall drop in happiness. And as we get richer, we simply find new richer groups to compare ourselves to, so our happiness can only ever last so long.

Perhaps happiness is less about how much money we have, and more about how we use it. When people receive a cash windfall at work, the more of it they spend on others (e.g. friends, charities), the happier they become. In some cases, this indicator of prosocial spending is an even stronger predictor of eventual happiness than the total amount of the windfall in the first place (of course within reasonable boundaries). This is even true in an experimental context when you give people money in the morning and ask half of them to spend the money on themselves, and the other half to spend it on others, throughout the day. At the end of the day, the people who buy gifts for others or give the money to charity gain greater happiness than the people who pay off bills or buy themselves a gift. And it doesn’t matter whether you’re given 5 bucks or 20 bucks, the strongest predictor of your happiness is still how prosocial you are in your spending, not how much you receive. The emotional rewards of sharing may even be universal and deep-rooted enough to apply to children. When children share one of their snacks with a cuddly puppet friend, they express more happiness than when they receive the treat for themselves. In fact, their happiness is greatest when they share one of the treats from their own stash rather than simply an extra treat they are handed by a researcher.

Photo from Pixabay. Adapted by yours truly.

We all think we’ll be happy with more money, and there is certainly some truth to this. But it’s not the whole story. We quickly get used to new ways of living and new purchases we make, so our day-to-day happiness has its limits when it comes to income. However, with a little extra generosity and a stronger focus on using our time for activities that actually make us feel good, we can fully reap the benefits that money and life have to offer. Nobody likes to end on a cliché, but our happiness really does rest on making our money work for us, rather than the other way around.