Money does make you happy, especially when others don’t have it
They say money can’t buy you happiness and there is evidence that once income reaches a certain level people really aren’t getting much happier with more income. But what about assets? Studies in the past focused on income rather than wealth but now a study among Germans looked at the interactions between income and wealth.
Using Germans as Guinea pigs is particularly interesting since they are famously pessimistic. I think we Germans are World Champions in pessimism, but we are never sure we can defend our title next year. But the Deutsche Bundesbank has done an extensive survey of the wealth and income of Germans in both 2010 and 2014 which allowed Antje Jantsch and her colleagues to disentangle the effect of wealth and income on life satisfaction.
First, the (sort of) good news. People with higher incomes and higher wealth report higher life satisfaction. On a scale from 0 to 10, the most common answer by Germans on how satisfied they were with their lives was an 8. Germans seem to be not so pessimistic after all. Yet, increasing household income led to higher life satisfaction. If household income rose from €31,000 a year to €61,000 a year, average life satisfaction rose by 0.226 points.
And this is where you can see the not so good news come in. The change in life satisfaction is quite small given that we just doubled the income of a household. The impact of wealth is even smaller. Increasing household total assets from €112,000 to €1,345,000 increased life satisfaction by 0.25 points. Yes, there is a measurable increase in life satisfaction if you have more stuff or make more money, but it is so small that it makes no practical difference.
But there was one result that put that entire “money doesn’t make you happy” slogan in doubt. When the researchers looked not just at personal income and personal wealth but at income and wealth relative to a reference group (in this case people living in the same area) then seeing other people become richer made people less happy, unless they became richer as well. Happiness really depends on who you compare yourself to. So, if you want to become happier, move to a neighborhood where you are the richest person nearby. Of course that will everybody around you less happy but who cares about these people anyway… 😊
Another reading suggestion: The High Price of Materialism by David Kasser (on the correlation between wealth and happiness).
A good friend once said: "Money doesn't make you happy, but having no money at all makes you unhappy..."
There is something to be said about the perils of envy. People are less happy when their friends move to Kensington Park Gardens rather than be really happy and grateful they don't suffer in Dharavi.
I would be curious if the definition of "happy" included the sense of security. Wealth and income can create financial stability which, throughout my financial planning career, may make one happy.
Sharing one of my favorite money quotes: “When I was young I thought that money was the most important thing in life. Now that I am old, I know that it is.” -Oscar Wilde