The Money-Happiness Connection | MONEY

1 di 3

http://time.com/money/2802147/does-money-buy-happiness/

EVERYDAY MO NEY PSYCHO LOG Y OF M ONEY

The Money-Happiness Connection

Susie Poppick @susiepoppick

June 9, 2014

Does money buy happiness? We put the

question to economist Justin Wolfers,
who recently conducted one of the
broadest studies on the subject to date.
Does money buy happiness?
Wealthier people are happier than poor
people. Wealthier countries are happier
than poor countries. As countries get
richer, they get happier. The relationship
between income and happiness is
extremely strong.

Justin Wolfers photographed in

Washington, DC

Joe Pugliese

Whats the nature of that

connection? Does money actually make you happier?
I should give the usual correlation isnt causation disclaimer here. When I say rich
people are happier than poor people, I dont know if its the money thats making them
happy. When I say rich countries are happier than poor countries, I dont know whether
its the greater money that makes the average American happy or whether its the greater
opportunities. Maybe its democracy, rule of law, or having functioning markets and
political and social institutions.
Saying richer countries are happier than poorer ones seems obvious. Has
other research found otherwise?
Theres something called the Easterlin paradox [named after University of Southern
California professor Richard Easterlin], which claimed that while rich people are happier
than poor people, rich countries are not happier than poor countries, and as countries
got richer, they did not get happier. Now, what we [Wolfers and fellow University of
Michigan professor Betsey Stevenson] did was study more comprehensive data. We
looked at surveys, including the Gallup World Poll, of 155 countries covering 95% of the
worlds population. It turns out that rich countries are indeed happier than poorer ones,
and as countries get richer, they get happier.
[Easterlin says that Wolfers has mischaracterized his findings, and that his paradox
indeed asserted that rich countries are happier than poor ones. Easterlin also says that
while happiness and income are correlated over short-term periods, the relationship
disappears over the long run.]
Psychologist Daniel Kahneman and economist Angus Deaton, also drawing
on Gallup data, famously concluded that happiness doesnt really increase
above incomes of $75,000 a year. How do you square that with your
research?
Whenever people talk about happiness, they are imprecise in their language. Im mostly
analyzing questions that ask you how you think about your life overall, or how happy you
are, taking all things together. These are questions that we think of as being evaluative.
The $75,000 number comes instead from measures of affect. Rather than being
evaluative, they gauge whats going on with you right now. They say, How did you feel
yesterday? This is not asking you to judge your life as a whole. And Kahneman and
Deaton found at very high incomes more money did not increase well-being. The
increases above $75,000 were vanishingly small.
Back to your research: Is the relationship between money and happiness
linear? Will I feel the same jump in happiness with each $1,000 raise?
No. If you think about how much extra well-being is associated with each dollar, its

02/10/2016 16.04

The Money-Happiness Connection | MONEY

2 di 3

http://time.com/money/2802147/does-money-buy-happiness/

absolutely a situation with diminishing returns. But if you describe it in terms of the
percent change in income, a 10% rise yields a roughly similar rise in well-being to
everyone in the world. A 10% increase in a very poor country like Burundi is equivalent
to a 10% increase in a very rich country like the U.S. But to get a 10% increase in
Burundi doesnt take a lot of dollars, whereas in the U.S. it takes a lot.

The U.S. economy has grown a lot since the 1970s, but youve found that
happiness here hasnt increased much. How can that be?
I never said that the only thing that changes happiness is income growth. Something else
is going on in the U.S.
Average per capita income has grown, but that can be misleading. If you look instead at
the medianthe income of someone making less than what half the population makes
and more than what the other half doesincome has barely risen over the past 40 years,
once you adjust for inflation. Income has actually fallen for those at the lower end of the
scale. If income has barely grown for most people, we shouldnt be surprised that
happiness has barely grown for most people.
So how can we fix that?
We can do it through the minimum wage or the tax system. We can do it through the
benefit system as well. Things like the earned income tax credit. Remember, an extra
dollar doesnt buy much extra happiness for a millionaire, but it buys quite a lot for a
working-class person.
Raising the federal minimum wage is politically difficult. So is making the
tax system more progressive.
Compulsory education up to an age older than 16 could also work. Research shows that
education and skills not only increase income later in life but also increase happiness.

02/10/2016 16.04

The Money-Happiness Connection | MONEY

3 di 3

http://time.com/money/2802147/does-money-buy-happiness/

What about the personal implications of your research? Are you happier
now that you make more money than you used to?
Unquestionably, yes. When I was in graduate school and I went into a store, I was always
looking at the prices. I was constantly calculating. You ask yourself, Can I afford to buy
this box of cereal? You think, If I buy more of this, maybe I can afford less of that.
Youre making these tradeoffs and youre constantly aware of these tradeoffs. And its
tiring.
The first thing I did when I had a well-paying job is I stopped looking at those price tags.
Now I never really feel stressed about money. Even if I lost my job tomorrow, I have my
degree, and I can get another job. I get to live free from stress and worry and the
constant calculating of tradeoffs that I had earlier in my career.
So would I be happier if I became a hedge fund manager?
Dont let an economist bully you into believing moneys all that matters. And dont let a
psychologist bully you into believing that money is completely unimportant. How you
manage that tradeoff is going to require a lot of experimenting and thinking and
introspection. People choose occupations based not just on money, but also on meaning.
Theres nothing in my research that says thats a bad idea.

2015 Time Inc. All rights reserved.

http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html

Interactive Data

Morningstar, Inc
Interactive Data Managed Solutions

Terms & Conditions

WordPress.com VIP

02/10/2016 16.04