Monday, June 27, 2011

Wealth & Happiness: A Rocky Relationship

By Dr.Tony Scinta, Ph.D., Associate Professor of Psychology

If we know anything about life, it’s that money can’t buy you love.  Or at least that’s what the Beatles keep telling us.  But what about happiness?  Given that much of our lives are dedicated to the pursuit of money and the fringe benefits that come with it (plasma TVs, nice cars, the occasional yacht), one might assume a positive correlation between wealth and happiness.  That is, as wealth goes up, happiness goes up, too. 

Surprisingly enough, research on the subject suggests a more complicated relationship.  On the one hand, there seems to be a positive correlation between wealth and happiness at very low levels of income – if you’re not making enough money to meet the bare necessities of life (namely food and shelter), your happiness is likely to be affected (Di Tella, MacCulloch, & Oswald, 2001).  On the other hand, once you get beyond basic life needs, the day-to-day happiness experienced by people at even very low levels of income may only be slightly lower than the happiness experienced by people who count themselves among the financially fortunate.

For example, a large-scale 2006 study guided by economist Alan Krueger and psychologist Daniel Kahneman at Princeton University looked at how much of a person’s daily life was spent in a bad mood (Kahneman, Schkade, Schwarz and Stone, 2006).  They found that people who made less than $20,000/year spent only 12% more time in a bad mood than people who exceeded $100,000/year.  A difference, but not much of a difference, and far less than most people suspected.  The majority of respondents incorrectly believed that people who make less than $20k/year would spend far more of their time feeling unhappy.

Some researchers believe the finding can be attributed to the “hedonic treadmill.”  Basically, the more you have, the more you want.  The principle might help explain why some high-profile people who make millions of dollars each year wind up bankrupt, as showcased in a recent article from National Public Radio.  As one’s means increase, so does consumption.  It’s a potential recipe for disaster for someone, like an athlete, whose income may be tied to a relatively small window of superior performance.

Does all of this mean people shouldn’t try to make more money?  Not necessarily – as I mentioned above, this is a complex, multi-faceted issue.  For example, researchers often look at two types of happiness – day-to-day feelings of well-being and overall satisfaction with one’s life, and each one relates differently to personal wealth.  Moreover, relative wealth – how you fare compared to those around you – may be more important than absolute wealth (making $35,000/year seems like a good deal if most of your acquaintances make $20,000/year, or worse).  If there’s a message, it’s that it probably does not hurt to question your assumptions, especially when it comes to major life issues like the pursuit of happiness. 

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