Will Money Make you Happy?

Photo credit: Caribtorch.com

If you are like many other people, you’ve never asked yourself such a question, because most of us assume a direct relationship between wealth and happiness. We may watch movies or read tabloids about rich people who are very unhappy, but we really don’t believe it. Who doesn’t love getting a raise, winning the lottery or finding money on the ground?

There have been several researches on the link between money and happiness, and most of them agree on one thing: richer people tend to be happier. However, there is an overestimation of how much happier rich people actually are than the rest of us. A research in the United States (Aknin, Norton & Dunn, 2009) found that people were able to predict the level of happiness of households who earned over $90,000 a year, but underestimated the happiness of households who earned $55,000 and less each year.

Their research explains why people in richer economies are surprised about ratings that show Nigeria as the country with the world’s happiest people. It seems the tendency is for people to underestimate the happiness of people in a lower economic position than themselves.

Research has also found that money does make you happy, but only to a certain point. According to Forbes,  additional income will make you happy until you reach a position where you are comfortable. It gave that income level in the United States as $75,000 a year. If you are like most people earning $75,000 a year in the USA, making mortgage payments, putting your children through college and driving a nice car won’t give you the headache it gives most people. At that level of income, any additional income will have very little effect on improving your happiness.

So is there no way in which money will make you happy after you reach the comfort zone? Well, there is. Spending money on others can actually make you happier (Aknin, Norton & Dunn, 2008). That research found a correlation between the level of one’s income spent on others and their happiness. So when Bill Gates and Warren Buffet are donating billions of dollars to charity, they are actually doing themselves a favour.

Still more research has suggested that spending money on experiences instead of material items may make you happier. For example, if you already have all the cars you’ve always dreamed of, a trip to go watch the FIFA World Cup in Brazil in 2014 will make you happier than acquiring a custom-made Lamborghini.

So, by all means, go get your money. At the income levels of most of us it will bring happiness. But if you do reach your comfort zone (as ceditalk.com tries to help you with career, education and business tips) do spend money on charity and having great experiences instead of gold-plated smartphones.

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Jerome Kuseh

Accountant | Economist-in-Training | Private Investor
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