How Much Does Happiness Actually Cost?

The question of what happiness is – and how it ties in with money – has occupied mankind ever since the first monetary systems were established. Most Swiss will tell you that money does not make you happy – at least not money alone.

Still, the quest for higher income and greater wealth is the driving force in most of our lives. Why does money play such an important role in our lives if it does not make us happy?

Happiness – how is it defined?

Happiness is defined very differently by people of different cultural backgrounds. Each society has its own set of ideals which define happiness. In most European countries, the key ingredients for happiness are considered to be a good social life (romantic partner, family, friends), good health and a contented professional life. But aside from those general social norms, there are also numerous more subjective factors. The experiences that trigger feelings of happiness in different people are as varied as people themselves.

Most people consider happiness to be the ultimate good. In other words: happiness is the goal, while money is only a means of achieving that goal. This philosophy has been a part of money-based societies for thousands of years, being promoted by both ancient philosophers like Aristotle and by modern self-help gurus alike. In increasingly individualized societies, the quest for happiness has become stronger than ever.

Many of the pieces of the happy-life puzzle are barely influenced by increases in wealth. Rich people are not automatically happy people just because they possess a lot of money. Loneliness and chronic illness, for example, cannot necessarily be solved by large injections of cash.

Money does make for contentment

Although money may not make you happier in itself, numerous studies show that a better financial situation does have a direct impact on happiness. That is to say, people who earn more generally describe themselves as being happier than people who earn much less than them.

But happiness is fleeting. Many lottery winners could write a song on the topic. Numerous lucky winners experience a temporary feeling of happiness upon receiving windfalls. However, just like you can get used to getting by on less, it is easy to get used to having a lot of money to spend. Because euphoric feelings of happiness are temporary, many researchers differentiate between the “joy of the moment” and long-term contentment.

There are many other things which influence our subjective feelings of happiness, but our income plays a fairly major role. According to economist Bruno S. Frey, the results of studies based on European cultures now largely apply to other cultures as well. Researchers go as far as trying to gauge the overall happiness levels of entire countries. Here too, the general trend shows that the wealthier a country is, the more contented its inhabitants are.

However, research done by Frey and other experts show that the relation between happiness and money is not fixed. The more money a person has, the less their happiness is influenced by any increases in wealth. A multi-millionaire will typically experience far less joy upon receiving several thousand francs than would a minimum-wage earner.

Aside from what is needed to provide for a person’s basic physical needs, the amounts of money required to make a person feel contented are not fixed, but are subjective to each person’s character and financial situation.

The amount of money considered to be necessary to cover basic physical needs is also relative, depending on the basic cost of living and the social expectations in a given location.

For example, a 2010 study by the Center for Health and Well-being at Princeton University found that in the U.S. at the time, emotional well-being rose alongside income only until an annual income of US$ 75,000 was reached. Any income above that amount had little further effect on happiness.

Money provides security

The notion that money, and particularly a higher income, contributes to overall contentment in many people has been confirmed by a study led by Psychologist Kostadin Kushlev of the University of British Colombia. The study surveyed more than 12,000 participants.

The household income of the participants was measured using a scale of 1 to 16, with 1 constituting a household income of less than US$ 5000 and 16 representing annual household income of US$ 150,000 or more. While half of participants were asked to describe a typical work day, the other half were interviewed on the weekend. Multiple factors which could contribute to feelings of happiness or unhappiness were included in the survey.

The verdict: People with a higher income are not automatically happier than people with a lower income. However, higher earners are less “sad”. That may sound like a paradox, but in clear terms, a person who is not “happy” is not automatically “sad”. Those who are not sad are not automatically happy.

One reason for the differences in unhappiness levels among different income earners is the security which having more money brings. Money cannot solve all of life’s problems, but a lack of money can certainly bring on a lot of stress and worry.

People who do not have a financial cushion to fall back can easily be thrown about by small changes in their financial setup – such as losing a job or being hit with expensive health problems.

If, for example, a person with limited financial resources is forced to spend a lot of money on an unexpected and urgent operation, they will likely have a difficult time covering their other bases (like health insurance premiums or vacations). In the worst case, those without financial means to cover all expenses may be forced to get a loan which, if not paid off quickly, can lead them into a cycle of debt.

In countries that do not provide a social security safety net, the threats of poverty and even homelessness are also very real worries. These circumstances can easily spoil a person’s happiness.

People with a higher income can deal with these same situations very differently. Unforeseeable expenses may be annoying, but they can still be paid off without completely turning the person’s world upside down.

A financially secure person is not necessarily happier than every penniless person. But on the whole, wealthy people are less likely to have to deal with financial difficulties and all of the negative consequences that come with them.

The moneyland.ch team