MONEY AND HAPPINESS: A MEDLEY OF MISLEADING QUOTATIONS

Some kernels of motivational wisdom are graced with a multitude of likeminded quotes, probably none more so than the iniquitous marriage of money and happiness. The most emphatic quote is that of Benjamin Franklin, one of the Founding Fathers of the United States, who fathered this pronouncement: ‘Money never made a man happy yet, nor will it. There is nothing in its nature to produce happiness. The more a man has, the more he wants. Instead of filling a vacuum, it makes one.’ Fast-forward more than a century, and one of his successor presidents, Franklin D. Roosevelt, cautioned: ‘Happiness is not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.’ And yet that thrill continued to plague people decades later, which is why motivational superstar Zig Ziglar urged his devotees that ‘Money won’t make you happy . . . But everybody wants to find out for themselves.’ Even Agatha Christie, the bestselling author of all time, spent some time pondering the following question while enjoying the royalties she garnered from the 2 billion books she sold: ‘What good is money if it can’t buy happiness?’ In contrast to the others, at least Madame Christie articulated her thoughts in the form of a question, leaving open the slim possibility – by using the qualifying word if – that money can indeed lead to happiness.

Well, money definitely can lead to happiness. And it is the reams of previous research demonstrating that specific relationship that led two psychologists to identify precisely how and why it happens.²² This research concluded that money provides people with opportunities they previously did not have, which enables them to have happy experiences they otherwise wouldn’t. It also concluded that when your income is low and you’re stressed every day, constantly preoccupied by money-related concerns – how to pay the bills, how to make the rent, how to give your kids the bare essentials – the patronising notion that money won’t make you at least a little bit happier is so ludicrous as to be insulting. This research noted the comfort that comes from being asset-rich, because it can be a source of additional life-enriching resources.

So we can probably end this chapter right here, because there’s enough evidence already to disprove the well-intentioned urgings of Franklin, Roosevelt, Ziglar and Christie. But let’s continue anyway and look at a selection of fascinating studies that explore not just the connection between money and happiness, but also the mechanisms through which that connection is fortified.

Let’s begin with the researchers mentioned earlier, who discovered that financial resources are ‘significantly associated with life satisfaction’, but noted that the phenomenon is driven strongly by the perception of one’s own financial wellness. Here’s what that means. Let’s say you and I each have $50,000. This might make you feel really good about life and about yourself. I, in contrast, might feel dissatisfied and worthless. The difference, according to the scholars, comes down to whether you perceive $50,000 to be enough in terms of your ability to control your expenditure. The more control you think you have, the happier you’ll be. A rising income enables you to cultivate more control.

What the researchers also found was that having a stash of cash provides people with a buffer that protects them from unfortunate events. The scholars use the example of a car accident that affects someone who’s wealthy and someone who’s poor. Assuming it’s an injury-free prang, the wealthy individual can afford to get the car fixed or replaced, thereby preserving her ability to remain happy (barring the short-term inconvenience of being without a car). The poor individual, by comparison, might be psychologically tormented. He could be unable to fix or replace the car, the absence of which might affect his ability to work or to meet his family obligations.

Now, that study was microeconomic. It focused very much on individual wealth and the associated perceptions of that wealth. But from a macroeconomic perspective, too, the link between money and happiness is evident.

This was demonstrated profoundly by academics from Harvard, the London School of Economics and the University of Warwick.²³ In their analysis of hundreds of thousands of individuals from around the world, a number of intriguing and important correlations were identified. First, a nation’s gross domestic product (or GDP) has a direct effect on the happiness of its citizens. More specifically, for every $1000 increase in a nation’s GDP, there is a shift in happiness of 3.6 percentage points per person, leading to the conclusion that ‘contemporaneous happiness and GDP are strongly correlated’.

The second result pertains to the opposite of GDP growth: a dreaded recession. Recessions, as everyone knows and fears, are associated with unemployment, bankruptcies and despair. Surely, then, we don’t need a study to prove that a recession – which is, in effect, a reduction of wealth – must have a consequently negative impact on happiness. And yet that is what these esteemed scholars sought to prove. What they discovered, perhaps unsurprisingly, was that happiness is certainly impacted – not only among the unemployed but also among those who still have jobs. That’s because even those who are still employed during a recession become fearful that they might be next in line to lose their jobs. That predominant fear, of course, crushes happiness.

The third finding relates to welfare. If money didn’t lead to some sort of happiness, surely welfare would have a similarly negligible effect, right? Not quite. The scholars found that the more generous the welfare state, particularly in the form of unemployment benefits, the happier a society became. The researchers concluded that ‘macroeconomics matters’ because of its ‘strong effects on the happiness of nations’.

Let’s move back to microeconomics, and a wish that many of us – probably all of us – have made at some stage: to receive a windfall of cash. If you’ve ever dreamed of winning the lottery, I’m possibly already preaching to the converted. The mere act of desiring such a massive windfall is associated with the hope that what it enables you to buy will also bring with it a bag or two of happiness. That’s precisely what researchers found when they investigated the lives of 9000 randomly selected people.²⁴ Their study compared those who had received a windfall in the preceding year – such as a lottery win or an inheritance – with those who had not. Their conclusion? ‘Money does buy greater happiness and lower measured stress.’

How much, exactly? Well, being the beneficiary of, say, £50,000 (which equates to approximately US$75,000 and AU$100,000) results in a rise in mental wellbeing of between 0.1 and 0.3 standard deviations. If, like me, you’re not statistically minded, that might not sound like a lot – but actually it is. To put it in perspective, it means that all you’d need to move from the bottom of the happiness scale to the top is roughly £1 million. How long you’d stay there is anyone’s guess, but the point to note is this: money brings happiness even if it’s just temporary. And if it’s only temporary, so what? Surely that’s better than no lift in happiness at all? Just ask the citizens formerly known as East Germans.

In the decade following the fall of the Berlin Wall, the average household income of East Germans increased by approximately 60 per cent. Did such a significant rise in wealth also result in a rise in happiness? That’s what a group of Australian scholars wanted to find out.²⁵ They studied tens of thousands of East Germans – and, for the purpose of comparison, West Germans too. One question was at the heart of their analysis: ‘How satisfied are you at present with your life, all things considered?’ The respondents rated their satisfaction between 0 and 10. The findings showed that, during the period of the analysis, while incomes in East Germany increased substantially, ‘average life satisfaction in East Germany also increased considerably, while West Germans experienced a fall in life satisfaction’.

Now, one could argue that the real reason for the rise in happiness could be attributed to the newfound freedom the East Germans were suddenly enjoying, the mobility they were relishing, the better housing they were receiving, and the many public services they were being granted. And yes, those factors had a large effect, amounting to a total of about 60 per cent. But that’s all of those factors combined. One single factor – the rise in real household income – constituted the rest. What that means is that 40 per cent of the increase in happiness that East Germans felt in the decade following reunification was due to the money that was accumulating in their bank accounts.

Let’s now revise the quotations that began this chapter.

Benjamin Franklin’s statement would be closer to the truth when worded like this:

‘Money has made people happy, and will continue to do so. There is much in its nature to produce happiness. The more one has, the more one wants. Instead of filling a vacuum, it fills a bank balance.’

Next in line for a revision is Franklin D. Roosevelt, who at least leaves room for the idea that the generation of money in its own right can be quite fulfilling – or, in motivational parlance, a fulfilling journey:

‘Happiness is in the mere possession of money and also in the joy of achievement, in the thrill of creative effort.’

Zig Ziglar, too, is up for a touch-up:

‘Money can make you happy . . . But everybody wants to find out for themselves, which is fair enough.’

Lastly, a modest addendum to Agatha Christie’s contemplation:

‘What good is money if it can’t buy happiness? And how good is money if it can!’

 

22W. Johnson & R.F. Krueger, 2006, ‘How money buys happiness: genetic and environmental processes linking finances and life satisfaction’, Journal of Personality and Social Psychology, vol. 90, no. 4, pp. 680–691.

23R. Di Tella, R.J. MacCulloch & A.J. Oswald, 2003, ‘The macroeconomics of happiness’, Review of Economics and Statistics, vol. 85, no. 4, pp. 809–827.

24J. Gardner & A. Oswald, 2001, ‘Does money buy happiness? A longitudinal study using data on windfalls’, Warwick University, March 2001, viewed 25 June 2016, www2.warwick.ac.uk/fac/soc/economics/staff/ajoswald/marchwindfallsgo.pdf.

25P. Frijters, J.P Haisken DeNew & M.A. Shields, 2004, ‘Money does matter! Evidence from increasing real income and life satisfaction in East Germany following reunification’, American Economic Review, vol. 94, no. 3, pp. 730–740.