How much happiness can money buy?

Posted by FrugalPinoy on Jul 13, 2009 in Money and Psychology | 2 comments

People say that money can’t buy happiness. Is this the truth or just a meaningless saying? When I think about this more, I realize not having enough money for your needs can be a source of stress. If you just got laid off, for example, how can you be happy if you spend sleepless nights worrying about where to get your kids’ tuition? Isn’t the lack of money a typical reason why some couples fight? Or if you work at a job you hate just for the paycheck, won’t you be more miserable compared to someone who has enough money to invest in a business they are passionate about? True, you can borrow the cash you need from friends and relatives, but that tends to put a strain on your relationships.

I suppose money can buy some amount of happiness in the sense that you won’t have to feel stressed or worried about the basics. Here’s what some psychologists found out about the matter:

People with more money tend to be happier than those with less – but only up to a point. That is the conclusion of psychologists Ed Diener at the University of Illinois at Urbana-Champaign, and Martin Seligman of the University of Pennsylvania, Philadelphia, who have reviewed numerous studies looking at the psychological effects of wealth. They report that money’s impact on happiness suffers from diminishing returns: once you have enough for food and shelter, more cash doesn’t bring much extra joy.
Source: “Why money messes with your mind” NewScientist.com

While money can’t buy happiness, it can give you the security and opportunities you need for pursuing the things, relationships, and experiences that make you happy.

In my experience, this is true because having enough money for your necessities allows you to spend your time and energy on the other things that do make you happy. But once you have enough for food, rent, and the bills, acquiring more money doesn’t necessarily mean you’ll be happier. After you’ve made yourself financially secure, true happiness and joy is something that you have to create for yourself, after all.

So if I were to rewrite the saying for accuracy, it’d be: Money can buy security, but more money can’t buy happiness.

Here’s another interesting fact from the study: if you have some extra money to spend on fun things, paying for experiences rather than material things can bring more pleasure.

The researchers found that people reported “experiential purchases”, such as trips to the theatre or travel, as bringing them more happiness than material purchases such as clothes. A concrete purchase may have cost more and lasted longer but a good experience brought more pleasure.
Source: “Why money messes with your mind” NewScientist.com

I guess this means that if you do end up with some extra money that you can spend for personal rewards, you can maximize the happiness it gives you by spending it on a trip rather than an expensive watch.

What can you say about the study? Do you think it reflects your personal experience with money and happiness?

Image by ctr from sxc.hu