Can money buy happiness?

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People have been arguing for centuries about whether or not money can buy happiness. Now, a new research provides a fuller understanding of the relationship between what we earn and how we feel.

It may seem a bit obvious: generally speaking, people with higher incomes are happier than those who struggle. They worry less about paying their bills, they have greater choice in where they live or how they work, and they can provide creature comforts for themselves and their loved ones.  However, wealth alone is not a golden ticket. Indeed, what kind of money one has and how they spend itmatters a lot more than a large income.

The basics on happiness
When looking at all of these research results, it’s important to understand what is meant by the term ‘happiness’. Those in the field of happiness research divide it into two components, and individuals need both to be truly happy. But only one of those components keeps improving the more you earn. The other tops out after a certain point.

The first measure of happiness is ‘evaluative’ which can be defined as a sense that one’s life is good— the individual is satisfied with his/her life and feels as though they are progressing towards their goals. This is the measure used by economists Justin Wolfers and Betsey Stevenson who have conducted extensive research comparing economic data and happiness surveys across the world. They have found that in just about every country, rich people tend to be happier than poor people.  Likewise, people in rich countries are happier than people in poor countries. When our basic needs for food, safety, health care, and shelter aren’t met, an increase in income makes a disproportionately larger difference for us than when we are relatively stable financially.  Moreover, those struggling to get by are more likely to experience instability in housing, nutrition, education, and health— all of which leads to pain, stress, and practical demands of a disease or disability so even a small increase in income can alleviate or prevent many of these adverse situations.

The other component of happiness, is known as ‘affective’ and deals with how often individuals experience positive emotions like joy, affection and peace, as opposed to negative ones. Daniel Kahneman and Angus Deaton of Princeton University found a consistent rise in overall life satisfaction as incomes rise, matching the results of Profs. Wolfers and Stevenson.  Yet, when they looked at affective measures, happiness did not rise after a household reached an annual income of approximately $75,000.  Higher incomes are related to a greater sense of satisfaction with life, but not necessarily the positive emotions we associate with happiness.  In other words, people may think their lives are going well while at the same time not experience joy, laughter, comfort, or connection.

So why is that?  How can money have a relatively weak effect on the happiness of wealthier people?

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