The Relationship Between Wealth And Happiness

 The Relationship Between Wealth And Happiness

Our primary objectives at Moneystepper are your health, wealth and happiness. We’ve already shown how closely related wealth and health can be, but what is the relationship between wealth and happiness?

 

plant design to buy The Relationship Between Wealth And Happiness – The Moneystepper Theory

My hypothesis, which we’ll try to see if it’s true through scientific and sociological research, is that there will be a very strong link between wealth and happiness (or more accurately, sorrow) for people with a negative or very low net worth. This is because these people and households will be struggling to pay their bills, be mounted with crippling debt and have many other money stresses that negatively impact their happiness.

Then, it seems logical that as net worth increases up to a level which allows you to live comfortably, happiness will increase relative to those net worth increases.

However, I believe there will be a directly proportional relationship between wealth and happiness (as wealth goes up, happiness goes up at the same rate), only up to a certain point. After this level, I think that each progressive increase in wealth attracts a lesser increase in happiness. I also would postulate that this point is around the level where the individual (or household) feel that they have reached “financial independence”.

The graph would therefore look something like this:

Weath vs Happiness Graph

 

Seems reasonable doesn’t it? I’d love to hear from you before you read on about what you think. Leave me a comment at the bottom of this page if you agree or disagree with this hypothesis.

 

chief architect x2 sales The Relationship Between Wealth And Happiness – What Do The Experts Say?

To see whether this hypothesis is reasonable, I’ve had a good look around the internet to find any research regarding the relationship between wealth and happiness, whether it supports or disagrees with this analysis.

 

Research From Kushlev, Dunn & Lucas

Let’s start with a psychology research paper from early 2015, which seems to agree with our hypothesis. Its conclusion and headline is “Higher Income Is Associated With Less Daily Sadness But Not More Daily Happiness”. Good start!

Kushlev, Dunn & Lucas – from The University of British Columbia and Michigan State University – reach a similar argument that we do. Many things in life which can cause stress and related sadness, for example your car blows up, your roof is damaged or you lose your job. However, with a good level of personal wealth, these things all become much easier to deal with.

 

The Cash Happy Report

According to the Cash Happy Survey, carried out by Sun Life Direct, the more cash that households have to play with the happier they are likely to be, but that doesn’t mean that you need to be rolling in it.

The survey asked over 3,000 households and found that there was a strong like between spare cash (what is left after all regular outgoings are accounted for) and happiness.

However, and very interestingly, they also found that the happiest 10% of UK households only have on average £713 spare cash each month. Many of you will agree that you don’t need to be a multi-millionaire to achieve such a level of spare cash each month.

The sad truth though, is that the average UK household’s spare cash is only £381 per month.

My favourite conclusion is that there is actually a link between budgeting well and happiness. This makes a lot of sense for me. Having a budget means having a plan, and having a plan in place when things go wrong financially makes life a lot easier to deal with.

Their full conclusion are summarized nicely in the following infographic:

Relationship Between Cost & Happiness Infographic

 

Stanford Business Article

A few years ago by Aaker & Rudd (Stanford University) & Mogliner (University of Pennsylvania) published a report entitled “If Money Doesn’t Make You Happy, Consider Time”. The title is a little misleading, as the conclusion is that individuals and business are happier and more successful when they concentrate on, and have more control over, their own time.

However, in my experience, it is much easier for people with a very healthy net worth to control their own time, compared to people working every hour under the sun trying to improve their financial position.

 

The Pew Survey

The 2014 Pew Research into happiness and money looked at 43 nations and their “life satisfaction” and compared it to the GDP of their country. The conclusions (with my comments on each below) are as follows:

 

  • On average, richer countries are happier, but only up to a point
    • Nice! That seems to agree with what I postulated. The survey asked people to rate “their life” between 0 (the worst possible life) and 10 (the best possible life). When comparing the percentage of people who scored 7 or more against GDP, it shows quite a strong positive correlation, but one where the trend line is a decreasing curve, exactly like our graph above

 

  • Economic growth helped improve feelings of well-being
    • I find this incredibly interesting. People in emerging nations with a growing GDP reported some of the highest levels of happiness. I think that this is also true for people and supports the conclusion from the Cash Happy Survey above which shows that those who have a good budget and are trying to move to financial freedom are generally happier.

 

  • Good health and quality education are the most important factors, followed by owning their own home and financial security in retirement
    • In this report, these items are considered “non-material” things and the author says that it shows that money isn’t everything. However, there is a clear link between good health services and quality education and money. This is as true for individuals. People who are worried how they are going to pay for their healthcare (now and in their old age) are clearly going to suffer more financial stress that those who can cover these costs easily.

 

 

Proto & Rustichini

This research effectively is into exactly my hypothesis – that there is a cut-off point where people notice a smaller increase in happiness levels compared to the successive increases in wealth. However, this report into money and happiness by Dr Eugenio Proto (University of Warwick) and Aldo Rustichini (University of Minnesota) look at the level of income (rather than net worth) where this change occurs.

Surprisingly for me (because it seems so low), they conclude that life satisfaction peaks when income per head reach £22,000 per year.

Even more surprisingly, they argue that beyond this point, as we get richer, we actually get less content. They noted that this is often down to the “aspiration levels” of wealth – something that Darshan Goswami expands on in the section below.

It is generally around the concept of “keeping up with the Joneses” and hence in richer countries, people surpassing a certain income level find themselves in this never ending cycle of wealth aspiration.

For me, there are some differences in this report and what we are considering. Firstly, it is comparing countries relatively rather than individuals within those countries. This could be more of an indication in the culture and the attitude towards money in these areas.

It also focusses on incomes, rather than net worth. The “keeping up with the Joneses” effect is usually most applicable for people with moderate to high incomes (as seen in the report), but with low to moderate net worth. This is because rather than sensibly investing their income, they spent it on flash and unnecessary liabilities to impress others.

Again, Goswami builds on this below, but we are exploring the link between wealth (in terms of a comfortable net worth) and happiness, and not a relationship between how much we can impress our neighbours and happiness.

In my opinion, it’s relatively obvious that a never ending and unfulfilling cycle of material aspiration won’t lead to happiness, but this is definitely not what we mean by “wealth” on Moneystepper!

 

Seems reasonable doesn’t it? I’d love to hear from you before you read on about what you think. Leave me a comment at the bottom of this page if you agree or disagree with this hypothesis.

 

Boyce’s Cycle Of Endless Aspiration

Dr Chis Boyce (also from the University of Warwick – what’s in the water up there) concludes the same as Proto & Rustichini in his 2010 report, but makes the link that I have above much more clear.

He concludes that Brtons are “victims of chronic dissatisfaction” because the pursuit of wealth is leading more people to work longer hours as they seek to “climb the social ladder”. The survey of over 10,000 people over seven years compared levels of happiness with income. Again, I think that “income” is a much less strong indicator of wealth than net worth, but let’s keeping looking into his conclusions.

The responses showed people were most happy when they had more than their neighbours. He warns that the “pursuit of wealth” and the “pursuit of happiness” were very different things and that the pursuit of wealth alone was a vicious circle.

However, I think that his definition of wealth is based mainly on someone’s level of income and their material belongings, which is a very different definition of wealth than we promote here at Moneystepper.

What can we learn from his research? As per Proto & Rustichini above, it isn’t material wealth and huge incomes that make us happy.

However, in our opinion, genuine wealth (a high net worth) managed in the right way (and not compared with your neighbours based on what car you drive) will increase your happiness, because of the financial security it provides and the freedom (to give, to live healthily, to have time to do what you with) it gives you. Darshan Goswami summarises it perfectly…

 

Goswami Asks Can Money Make You Happy

I think that this final research, by Darshan Goswami of Pittsburgh, reaches the most thought provoking conclusions. He states that people generally look at the relationship between money and happiness at the two extremes. One side thinks that the more money you have, the happier you will be. Alternatively, the other side thinks that having money is not spiritually or socially acceptable and that money is the root cause of all evil.

However, people at either of these extremes will find it very difficult to achieve happiness if they look at wealth in this way.

The people who only strive for more money because they think it will bring them happiness have an attachment to money that is actually built on fear, which creates insecurity. The desire to have more money to feel more secure never ends.

Alternatively, people who believe that money is the root of all evil still need that money when it comes to fix their vehicle. So, not only are they stressed due to their financial position, but they are also torn that money is the solution to relieve their sadness in this scenario.

He concludes that “true happiness results from sharing generously of yourself, your mind, emotion and spirit, with all those who come in contact with you…by being an optimist and doing kind deeds for others around you”. Money plays a role in this happiness to the extent that it allows you to succeed in this goal, but no further.

I like this…mainly because if you could graph it, it would probably look like my graph above!

 

Seems reasonable doesn’t it? I’d love to hear from you before you read on about what you think. Leave me a comment at the bottom of this page if you agree or disagree with this hypothesis.

 

Relationship Between Wealth And Happiness – The Conclusion

So, based on the scientific, sociological and psychological research, the Moneystepper hypothesis regarding the relationship between money and happiness doesn’t seem far off.

Every step along the path to financial freedom leads to a little step up in your happiness as the financial stresses that can impede your life become less significant for you.

However, how you think about money and wealth is absolutely integral in improved wealth leading to improved happiness. Wealth is NOT how you are doing compared to your neighbours, it’s not indicated by your income and it’s certainly not demonstrated by how nice your car or golf clubs are!

Wealth instead is having a strong net worth that allows you more freedom from the financial stresses in life and allows you to spend time and focus on the things in life which actually make you happy. That’s pretty obvious in my opinion!

So, if you want to join us on our mission towards financial freedom, building wealth in the RIGHT way, and the associated happiness, then it would be amazing to have you on board. Just head over to our Moneystepper Savings Challenge, where we all work together every year to achieve our goals, in order to achieve financial freedom and happiness.

Have a great day! 🙂

4 thoughts on “The Relationship Between Wealth And Happiness

  1. Very Interesting Article! I think wealth and happiness are two of the great desires of human beings. In short, they often go together because most people that are financially wealthy tend to be happy because of the attendant financial independence. Also, the first element of how to find wealth and happiness is to understand what it is that you truly value most, so that you can get to work on those things and the by-product of that is typically feeling happy and joy almost immediately.
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  2. I agree with you I am struggling through the same thing I need time to do things I love but I have to work hard to make a living if I had a good net worth I would be able to stuff I like without thinking about my house rent or bills …so it is easy to understand. .but here’s the other thing u can’t buy life if I took an eye from you will you be able to buy it back with all the money you have ?? Another question for you sir ?

  3. Money can’t buy you happiness, but it sure can set the stage for you to be happy. I’ve seen people miserable with money and without. All I know is that life is a lot less stressful with the money you need to have a certain basic standard of living. After that, it’s more up to your personality and how much you value money for money’s sake vs the comfort of allows you.
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