Listen to this article
Historically, money was no more than a tool to help people achieve their real life goals, like buying a home or raising a family. Even today, not everyone agrees that accumulating money for its own sake is their automatic objective.
It helps to bear in mind that the pursuit of profit is rooted in the evolution of our capitalist economies.
In this module you will learn
- that money indeed provides happiness
- what crucial role your personal context and control play
The key to happiness?
Most of us have heard that money can’t buy happiness many times throughout our lives. You might find it hard to agree when you see bills piling up and you can’t commit to having fun or planning things like holidays or birthdays while your bank account lies empty. So it’s good to know that a landmark 2010 Princeton University study showed that money does indeed influence our happiness — although only up to a very specific point.
The study covered 450,000 Americans polled in 2008 and 2009. It found that their annual income was closely connected to their emotional wellbeing. While a lack of money didn’t seem to cause unhappiness in itself, that issue made people feel worse about their other problems. But having more money only increased happiness up to an income of about $75,000.
For people who earnt more than this, their individual temperaments and life circumstances affected their emotional wellbeing more than money. This makes sense: people earning over a certain threshold will have more cash available to buy the fun things and experiences they enjoy, like a favourite meal, or going out with friends.
Happiness vs satisfaction
An updated study in 2018 by Purdue University pegged the global average for the “magic” income figure at around $95,000. It should be noted that the study was talking about individual income – the figure could well be higher for families.
The study was based on data from the Gallup World Poll, which is a representative survey sample of more than 1.7 million individuals from 164 countries. The estimates were based on purchasing power and questions on life satisfaction and wellbeing.
It’s been debated at what point does money no longer change your level of wellbeing. We found that the ideal income point is $95,000 for life evaluation and $60,000 to $75,000 for emotional wellbeing.
The different income figures relate to different types of responses – which could be described as happiness compared to satisfaction. Emotional wellbeing is about our day-to-day emotions, such as feeling happy and excited, or sad and angry. In contrast, life evaluation is more about making a rational evaluation – such as an overall assessment of your success. That could explain the higher figure, as it could be influenced by higher goals and comparisons to others.
This fits with past research on money and happiness, which also found that happiness isn’t linked to your absolute worth but your relative wealth – whether you have as much money (or more) than your neighbours.
…there was substantial variation across world regions, with satiation occurring later in wealthier regions for life satisfaction.
This could be because evaluations tend to be more influenced by the standards by which individuals compare themselves to other people.
Self-knowledge could be the secret
Research from Cambridge University has found that people who spend more on purchases that fit their personalities are the happiest.
The study, published in the journal Psychological Science, examined how 625 real people spent their money, following around 77,000 UK bank transactions over six months. It matched 59 spending categories to the Big Five personality traits often used in psychological research:
- Openness to experience (unconventional versus traditional)
- Conscientiousness (goal-oriented vs impulsive)
- Extraversion (extrovert vs introvert)
- Agreeableness (altruism vs self-interest)
- Neuroticism (emotionally stable vs instable)
The results could mean that how we spend our money could be as important to our happiness as where we work, where we live or even who we spend time with.
The key is to take control and use your money in ways that express your real personality and goals.
Who (or what) is in control?
If you want to make sure that your money helps to make you happy, you have to make the decision not to let it define you or rule your life. You need to remind yourself that money is simply a tool that you can control and use to help express yourself.
Key takeaways and what comes next
So, here we finally have it: Whilst a certain amount of money, and maybe less than many of us thought, does lead to maximise happiness, it is also very much about your ability to spend it in a way that works best with your personality, values and goals. In other words, considering money as a tool and appropriately embedding earning and spending it within the context of your live and personal situation is likely to ultimately yield the highest happiness and satisfaction.
How about considering these points about money and happiness to start resetting your money mindset:
- What are the things that really matter to me? Where does money come in?
- When was I most happy? What made this a happy time – did money play a part?
This will also nicely lead into our next module What does money mean to you?, where we will be looking at some of the unconscious biases many of us have about money.