Daydreaming about winning the lottery jackpot or receiving a substantial rise in income often goes along with imagining all the possibilities that having a lot of money would offer. From buying fancy apartments and traveling around the world to participating in exclusive dinner parties with the political establishment, money is often considered as the key enabler for a good life. And it can even help to make the world a better place. Spending money on NGOs or adopting a sustainable lifestyle can help to fight climate change or foster progress on the global implementation of human rights. Money can satisfy both, selfish as well as altruistic motives and it seems fair to conclude that money can play an important role in realizing your dreams.
Still, there is an ongoing debate about whether or not money is able to buy what some people would call the ultimate human motive or even the meaning of life: Happiness. In casual conversations, people often agree to the notion that money can’t buy happiness and there is scientific evidence supporting this notion. Among all things, you can’t buy what researchers almost unanimously consider to be the leading cause for happiness: Deep and fulfilling relationships with other people. While money can give you a lot of flexibility and freedom, it might fail to give your life some needed substance and depth.
The relationship between income and subjective wellbeing also is a frequent topic of scientific debate. While there is a scientific consensus that a very low income directly translates into lower levels of wellbeing, there is no definite conclusion about the effects of high income on wellbeing. Sure, people with an annual pay of $100.000 are on average a lot happier than people earning $10.000 per year. But what are the results when you compare people without existential worries? Is the investment banker with an annual salary of $500.000 happier than the high school teacher who just earns $60.000?
In order to explore this question, Nobel Prize laureate Daniel Kahneman and the famous economist Angus Deaton analyzed the responses of 450.000 people participating in the Gallup-Healthways Well-Being Index. For their analysis, they distinguished between two aspects of subjective wellbeing. One aspect is called emotional or hedonic wellbeing. It refers to the frequency and intensity of positive versus negative emotions. The more people experience positive emotions such as joy, fascination or gratitude in comparison to negative emotions like sadness or anger, the higher their subjective wellbeing.
Besides this emotional quality of life, the cognitive quality also plays an important role in determining our subjective wellbeing. The cognitive quality addresses how we evaluate our lives: Are we happy with your life as a whole? Do we feel like something is missing? Both aspects, our life evaluation as well as our emotional wellbeing affect our subjective wellbeing. You can experience a lot of joy in your life and still think that your life could be better or you can feel good about your life as a whole despite your common feeling of sadness or anger.
Analyzing the 450.000 responses, Kahneman and Deaton looked at how measures of live evaluation and emotional wellbeing correlated with the income of people and made a somewhat surprising discovery. While rankings of emotional wellbeing increased with income and stagnated after reaching an annual income of approximately $75.000, life evaluation kept increasing even well after reaching this threshold. This implies that people earning at least $75.000 annually experience on average a similar frequency and intensity of positive emotions independent of their actual income. The investment banker does not experience joy more often or more intensely than the high school teacher earning $75.000. However, this is not the case when it comes to the life evaluation of people. The higher the income of people, the more positively they will on average evaluate their own life – the investment banker will feel better overall about his or her life than the high school teacher, at least in the US.
But why is that so? A lot has to do with what social psychologists call social comparison – our constant need to compare ourselves with others. In fact, our evaluation of life overall is so deeply affected by how well we are doing in comparison to others that it seems fair to say that the absolute value of our income has only little influence on it. A way more important factor of influence is the status quo of our social reference framework – our friends, family and the society we live in. If we know that we are financially better off than a lot of other people, we will be more likely to evaluate our lives more positively.
In summary, it can therefore be said that getting rich will not make you happier in the sense that you will feel positive emotions more often. It rather will make you see your whole life in a more positive way, at least as long you earn more money than others…
Daniel Kahneman & Angus Deaton (2010): "High income improves evaluation of life but not emotional well-being" Proceedings of the National Academy of Sciences 107:38.