Ever heard of the phrase “Money can’t buy happiness”? Well, it turns out that is not necessarily true. Before you continue to read on, take a look at the data analysis piece I put together on the relationship between financial status and emotional state. I walked through the steps I took to create all the tables and displays.
One of the earliest studies to explore the relationship between income and happiness was conducted by economist Richard Easterlin, a former UPenn student and current professor at USC, in the 1970s. In his study, Easterlin found that, on average, people with higher incomes reported higher levels of happiness than those with lower incomes. However, he also noticed that once basic needs were met, the relationship between income and happiness weakened considerably. At a given point in time, people with higher incomes tend to be happier because they compare their income to those who are less fortunate, while those with lower incomes tend to feel less happy. Over time, as incomes rise across the population, the incomes of one's comparison group also rise, which weakens the positive effect of one's own income growth on their happiness. Despite making more money, they aren’t much happier. This phenomenon is now known as the "Easterlin paradox". His study helped to launch a field of research that has since explored the complex relationship.
This idea has been further researched recently. The 2010 study titled "High income improves evaluation of life but not emotional well-being," was a landmark study that challenged many commonly held beliefs about the relationship between income and happiness. The study was conducted by a team of researchers led by psychologist Daniel Kahneman and economist Angus Deaton, both of whom later won the Nobel Memorial Prize in Economic Sciences for their work on well-being economics.
The study analyzed data from over 450,000 Americans, who had been asked to rate their life satisfaction and their daily emotional experiences, such as joy, sadness, stress, and anger. The researchers found that, overall, people with higher incomes reported higher levels of life satisfaction than those with lower incomes. However, when it came to their daily emotional experiences, people's income level had much less of an impact. The researchers found that income was only weakly correlated with day-to-day emotional experiences and that the emotional benefits of income leveled off at around $75,000 per year. In other words, people who earned more than $75,000 per year didn't necessarily experience more positive emotions on a daily basis than those who earned less than that amount. The study was also criticized by some who argued that it relied too heavily on self-reported data and that other factors, such as health and social support, might be more important predictors of well-being than income alone.
Other studies have looked at how happiness is impacted by how income is earned. For example, a 2013 study published in the Journal of Economic Behavior & Organization found that people who earned their income through activities that they found meaningful reported higher levels of happiness than those who earned their income through less enjoyable activities. 11,000 were surveyed in the United States and asked to rate their satisfaction levels. The findings suggest that it's not just the amount of income that influences happiness, but also how income is earned. People who are able to find jobs that align with their values and passions tend to experience more fulfillment, even if their income levels are not as high as those who earn more through less enjoyable work.
So what's the bottom line? Can money buy happiness? Well, the answer isn't a simple yes or no. While having a certain level of financial stability can contribute to overall life satisfaction, it's important to know that there are other factors that influence our emotional well-being. As the research shows, the relationship between income and happiness is complex, and there are diminishing returns to the emotional benefits of income beyond a certain threshold. Ultimately, it's up to each individual to decide what truly makes them happy, whether it's financial success, pursuing their passions, or strong social relationships. So next time you hear the phrase "Money can't buy happiness," remember that the truth is a bit more nuanced than that.
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