The Psychology of Money and Happiness

“Money doesn’t buy happiness or does it?”

In 2010, psychologist Daniel Kahneman and economist Angus Deaton attempted to investigate if money impacted people’s psychological well-being, which comprises positive and negative effects and life satisfaction. The study found that money did impact how people evaluate their lives when they think about it; that people with more money feel better about their lives. However, emotional well-being rose with income, as expected too, but only to an annual salary of $75,000 ($90,000 in today’s money). Beyond that, people were no happier with higher salaries. The conclusion drawn from this study was that whilst “low income is associated both with low life evaluation and low emotional wellbeing”, ironically, “high income buys life satisfaction but not happiness”. 

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The findings of this study were contradicted by a more recent study done by Killingsworth (2021). This study has an edge over the previous one as it measures participants’ well-being in real time and in greater detail. Killingsworth (2021) observed that money does have a boosting effect on happiness – at least for most people – up to an income of $500,000 (which is pretty rare!) The findings also showed a smaller group of people whose well-being fails to improve despite acquiring more wealth, particularly when they hit annual earnings of $100,000. So, if you fall under this category of the “rich and miserable”, sorry to say this, but money can’t make you happy. 

Now, if you are not a “rich” person yet, fret not! There’s more to life and well-being than money. 

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Relationships 

The world’s longest study on happiness – the Harvard Study of Adult Development – acknowledges that money can give us a sense of security and safety and make us feel we are in control of our lives. However, life is really about our connections with other people. In a 2015 Tamil movie, the female lead Subbu, firmly believes that money can buy happiness, and goes so far as to break up with her then-boyfriend Karthik and get engaged to a wealthy man. She starts living as a member of her fiancé’s family, only to realize that the relationships in that household are superficial. The movie ends with Subbu reconciling with Karthik, as she understands that she wants the warmth of relationships and not money. This is coherent with Waldinger’s (2016) statement “The good life is built with good relationships.”

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Non-material experiences 

It is not surprising or uncommon to see the wealthy segment of the population owning multiple houses in India and abroad, using luxury brands of lifestyle, driving in posh cars and dining at star hotels. However, a Gallup World Poll international and intercultural study observed that despite the association of higher income with higher life evaluation, non-material things predicted experienced well-being. In fact, Joshua Fields Millburn and Ryan Nicodemus (2014), better known as “The Minimalists”, value experiences like “travel, indie concerts, vacations, community theatre, etc.” over possessions. Such experiences can make us grow our social connections and bond well with our loved ones. 

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Kindness and altruism

So far, we have seen the benefits of spending money for ourselves. Does it also matter if we spend money on others? What about spending money on strangers? Will that make us happy?

In a now classic experiment conducted by Elizabeth Dunn and her colleagues (2008), people walking down a street in Vancouver, Canada were given an envelope containing either a $5 or a $20 note. Half of the participants were asked to spend the money on themselves, and the remaining half were asked to buy someone else a present or to donate the money to charity. Both the groups had until 5 pm that day to spend the money. This study observed that participants’ money or what they bought with it made no difference. However, there was a significant difference between the happiness of both groups. Particularly, the participants who spent the money on others felt significantly happier than those who spent it on themselves. 

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A recent study by Weiss-Sidi and Riemer (2023) also found that altruistic behaviour increases happiness. However, there might be cultural differences in the effects of altruism on happiness. In the case of individualists, altruism is linked to self-interest, and helping others results in an increase in happiness for the helper. On the other hand, in collectivistic cultures, altruism is focused on the recipient, and helping others is less likely to enhance happiness in the helper. Considering that collectivistic cultures value the needs of the community over that of the individual, this finding could be true.

However, a study by Titova and Sheldon (2021) showed that making others happy is more meaningful than doing something to make oneself happy. Consider this situation. Let’s say that you are walking back home after a long day of classes, and on your way, you see an old woman visibly weak and hungry. You go to her and offer her some rotis bought from the shop nearby. Almost instantly, you see her face light up. She receives the rotis from you, and as she does, she blesses you saying “Khush raho, beta!” How does that make you feel? Do you feel good about yourself? Does that boost your happiness? If yes, this in itself is proof that acts of kindness and altruism towards others can indeed make us happy.

Let us always remember Billy Graham’s famous quote – 

When wealth is lost, nothing is lost;
When health is lost, something is lost; 
When a character is lost, all is lost.

Earning a lot of money is not going to make us happy. It does provide a sense of safety and can be used as a means to lead a better life. But how we spend that money determines positive changes in happiness. You can earn a mediocre income and still be happy. After all, living a truly wealthy life is when you are holistically well.

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