Is Money the Root of Happiness?

Economics may be a great science for understanding numbers, but it does a poor job of predicting wellbeing.

“When income exceeds a certain threshold, it no longer brings more happiness,” according to the “Easterlin paradox.” Within a country, the rich are generally happier than the poor, but that’s not true over time or in comparisons among countries. People in richer countries are, on average, more content than those in poorer nations, but no connection emerges between rising wealth and rising happiness, even in poorer nations. Income disparities influence contentment less in the U.S. and Europe than in Latin America, maybe because people in the developed world see income gaps as motivators for success, not as lasting, insurmountable inequities.

The “hedonic treadmill” explains one facet of the Easterlin paradox: Once people have the vital necessities of life, like food and shelter, their “rising aspirations” value relative wealth, not absolute wealth. They adapt to greater incomes and compare what they have to what others have. Losses affect them more than gains. Factors other than money – health, jobs and relationships – influence their happiness levels, which return to a “set point” over time. The exception is that “life-changing episodes,” such as bereavement or divorce, have a lasting impact.

Does wealth make you happy? How much more money could make you somewhat happier, or a lot more? Because ambitions change, you may tend to believe that you were not as happy yesterday as you will be tomorrow – people don’t account for their improved conditions when looking at the past or future. Income variations explain changes in happiness less than other aspects of life, such as health and job status. In any given nation, wealthier people experience proportionately less happiness as their money grows.

Research in “transition countries,” such as Eastern European nations in the 1990s, found that people derived less fulfillment from their jobs, health and families as their wealth grew, but this pattern has reversed in some countries in the intervening years. People in poor countries believe that happiness and money are strongly linked.

A look at the statistics suggests that globalization and competition have benefited nearly everyone, with no upsurge of job loss in most parts of the world. Social policies should provide citizens with stability in terms of income, occupation, family ties, community, and mental and physical health care. If happiness became part of public-policy decision making, governmental policies might better reflect people’s needs and aspirations.

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