Money May Satisfy But Does Not Bring Happiness

March 22, 2009 by  
Filed under Money and Behavior

money_happinessI am intrigued by the relationship between money and behavior. Knowing something about it helps me understand why I and the people around me do some of the crazy things that we do with our money and our time.

We often hear that “money can’t buy happiness.”  This suggests that society in general is aware of and believes in the truth behind the words.

So why doesn’t society act like they believe it? Why is there so much political discourse and media focus on who has money and who doesn’t?

Satisfaction vs. Happiness

In my search for more information on the “money and happiness” relationship, I came across a report of a pyschological study directed at people who believed that having higher incomes and more money would make them happier.

The study found that when people reported being “happier” with more money, the feeling was actually an illusion.  The illusion is based on the difference between “satisfaction” and “happiness.”  This is what the scientists who conducted the study reported:

The belief that high income is associated with good mood is widespread but mostly illusory.  People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities.

What is this illusion about happiness?

The scientists tell us that we tend to associate certain “things” and status with happiness when in fact they are not the same. We assume that getting a promotion, living in a big house, or driving a nicer car are measures of happiness. So when we achieve these things, we are supposed to be “happier” and that’s what we tell people. But while that McMansion or big paycheck may bring a level of satisfaction, they do not equate to being in a state of happiness.

To counteract this illusion, the psychologists devised a way to look at feelings of happiness from moment-to-moment during the day. Every 25 minutes during their daily awake periods, the survey participants were asked to report on their feelings of being happy. The authors call this the “Day Reconstruction Method” (DRM). This enabled the researchers to exclude the “satisfaction=happiness”  mis-perception. This is what they said about the DRM findings:

Respondents reported their experiences from moment to moment as well as their annual household income and overall life satisfaction. The new survey found that income was more weakly correlated with individuals’ happiness from moment to moment than it was with their overall life satisfaction.

If people have high income, they think they should be satisfied and reflect that in their answers. Income, however, matters very little for moment-to-moment experience.

Why is there No More Happiness with More Money?

This is an extremely interesting question to me. People focus on making more money then report being “happier” based on the illusion that being satisfied is a measure of happiness. Why were they wrong?

The scientists tried to explain that as well. I think they hit on something big.

The  authors studied data from the Bureau of Labor Statistics which revealed some extremely telling information:

Men making more than $100,000 per year spend 19.9 percent of their time on passive leisure, compared to 34.7 percent for men making less than $20,000.

Women making more than $100,000 spend 19.6 percent of their time on passive leisure, compared with 33.5 percent of those making less than $20,000.

Wealthy people, it seems, spend so much time chasing the money that they don’t have enough time left to use in a way that makes them happy. People with lower incomes spend more time enjoying themselves.

The authors said it this way:

Despite the weak relationship between income and global life satisfaction or experienced happiness, many people are highly motivated to increase their income.  In some cases, this focusing illusion may lead to a misallocation of time, from accepting lengthy commutes (which are among the worst moments of the day) to sacrificing time spent socializing (which are among the best moments of the day).

I think a lot of us sense that this is the case but we have trouble accepting it 100%. How many of us are willing to downsize our economic life to recapture time for those happiness-generating moments?

How to Apply Money and Happiness Research

As we grow older, many of us come to understand that we have been living to work instead of working to live. Baby boomers (of which I am one) are finally catching on to the fundamental differences between satisfaction and happiness. That’s why a lot of us are looking to downsize our committments to having more money and “stuff” and upsize our commitments to freeing up time and resources to do other things.

The problems come from obstacles to economic downsizing that our earlier life habits have created. The most prominent and obvious of these obstacles is debt. Our super-sized lives have brought super-sized debt. Even if and when we recognize what the research shows about the non-correlation between happiness and money, those monthly payments get in our way.

This is why Mr. and Mrs. ToughMoneyLove have focused on making money for the immediate purpose of eliminating debt. We know that money will not buy us happiness. But the lack of debt will give us the freedom to choose happiness.

Others may have the opportunity to avoid the debt altogether.

The research on money and happiness also seems to undermines the notion that there is an important distinction between “good debt” and “bad debt.”  In my opinion, any debt that presents an obstacle to a decision to downsize your economic life – choosing happiness over satisfaction, if you will – is bad debt. That leaves what, exactly?

There probably is a balance to be found – a satisfaction/happiness “sweet spot” – in our life. The key is to not let our desire to be satisfied overload one side of the equation too early in our lives. Otherwise, we could spend a lifetime trying  in vain to re-balance.

Source:  Kahneman, D., Krueger, A. B., Schkade, D., Schwarz, N., & Stone, A. A. (2006). Would You Be Happier If You Were Richer? A Focusing Illusion. Science, 312, 1908-1910.

Image credit:  ZR

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12 Responses to “Money May Satisfy But Does Not Bring Happiness”
  1. MasterPo says:

    I think your stat on money/income vs. time spent in leasure is misleading.

    There’s a very simple reason why someone making $100k or more spends less time on leasure – because they have less time to spend!!

    People who get paid 6 figures earn every penny of it. They don’t pay you like that for no reason.

  2. MasterPo – That’s the point. The higher income people spend so much time focusing on making money that they have less time to enjoy life in general.

  3. ryan says:

    I love your site Mr. Tough, but this study is pure BS in every sense.

    There’s no control group whatsoever. They looked at one set of people making over $100k/yr and said “these people spend X amount of time having fun.” They compared this with folks making less than $20k/yr and said “these folks spend 2*X time on fun.” That should tell you right off the bat that this is meaningless fluff. The poor group’s fun might be smoking Marlboros in front of Jerry Springer; I’m in the “rich” group and I can assure you that I would not find that to be fun no matter how much time I got to spend doing it. In order for this particular “study” to have any relevance it would need to take members of the rich group, give them less money and more free time and then compare the results before and after; or vice versa with the poor group.

    And another criticism–the authors of this study, just in the way they constructed it, have proven to me that they know nothing whatsoever about what defines true wealth. Income is less than half of the equation, and yet time and again all we ever hear about when talking about what makes someone rich is “yearly income.” (I’m assuming their “income” was based on wages and earnings, not the proceeds of savings or investments). That being said, in many ways, you and these authors are right. Making more money is not going to make you happier. HAVING more money, and knowing how to keep it, and being happy with what it can sustainably produce for you and not constantly coveting what it can’t is what makes one happy. Or at least makes me happy. Or at least for me, working towards that goal is what makes me happy.

    • Ryan: Thanks for the comment. I think the study authors were looking for possible explanations why there was no correlation between higher incomes and “in the moment” happiness. The “leisure time” issue was one of them. Others included “income relativism” (where it has been shown that some people are constantly comparing their incomes to those of others, regardless of how much they make) and stress induced by focusing on making more money. Finally, psychologists distinguish between being “happy” and being “satisfied” while many of us don’t.

  4. ryan says:

    Fine, but the way the study was written and presented was kind of like saying “A cactus is perfectly happy with just a couple drops of water, therefore an oak tree shouldn’t bother building up so many roots to constantly try to suck up more water. Just be more like the cactus. It’s happy.”

    But that analogy might be a stretch.

    I think, then, that the study I would like to see would be a happiness comparison and analysis between people who do the exact same job, have the same sort of upbringing and education, make the exact same incomes, and yet operate their lives on completely different save/spend ratios.

    My point is, I think financial peace comes from meeting your basic needs and then having as high of a margin as possible. Wealth is when the interest of your investments is greater than your basic expenses. In that case, no matter what you do, it is, by definition, all free time; no matter if it’s leisure on the golf course or 80 hours in the office.

    Of course that’s just me. An even better study would find a way to take the spendthrifts down to living with a bigger safety margin and less spending, and then compare before and after. The truth is, most of these studies aren’t trying to find out if money buys happiness, what they mean is does “spending” buy happiness.

  5. kitty says:

    Ryan, you make some good points. Most such studies are flawed. They need to look at a relatively large number of people to come to any conclusion so that individual differences stop to matter. Also – maybe unhappy people simply pursue money? Like in a 19th century Russian play where a young woman says “I searched for love and couldn’t find it. .. Since I couldn’t find love, I am going to search for money”. Plus happiness is pretty subjective.

    At the same time, it seems intuitive that money doesn’t buy happiness. Can money buy love or help with loneliness? What about health? Yes, you can eat healthier or have better medical care or join the health club, but these choices make very limited impact. At the same time highly compensated jobs often come with higher level of stress. They are also more often sedentary jobs.

    I also agree with Master Po. I earn over 100K, and nope, they don’t pay it for nothing. I cannot just leave work at 5PM and forget about it. My employer is actually better than most in terms of schedules – it gives me unlimited number of sick days, doesn’t bother tracking vacation days and couldn’t care less when I come and go or if I work from home on some days – as long as I am there for critical meetings (many of which are teleconferences so you can easily dial from home) and get results. Results are all-important, and these are near impossible to achieve by stopping work at 5pm. Even if you do, you still think about it. Talking about teleconferences – sometimes they are with India or China, in which case I may end up having a meeting at 9pm. Plus, the environment is very competitive, and everyone is ranked against each other. So you always worry if you’ve done enough and often take on more than you can handle. There are a lot of people in my company who don’t even take all of their vacation days. I make a point of taking my all vacation days, and always feel guilty about it, even if I have completed everything.

  6. Roger says:

    @ryan: It’s a study in the social sciences; of course it’s pure fluff. Social scientists, unlike physical scientists (the biologists, chemists, and physicists of the world) can’t go into a lab and control every factor other than what they are attempting to measure. As such, they have to rely on observation of existing conditions to make their points. As such, they can only note patterns and coincidences, which may, or may not, illustrate a broader truth.

    There’s several reasons why your ‘make a rich man poor and/or make a poor man rich’ experiment wouldn’t work:

    -First, if you experience less happiness when you go from making $100k per year down to $20k per year, that doesn’t necessarily mean that making a lower salary leads to less happiness. Rather, it could just mean that a drastic drop in income causes people to be less happy. The same logic applies for someone getting much more money and becoming happier; is it the amount of money, or just the difference compared to what they were previously receiving.

    -Second, without controlling for the job environments of each group, you can end up drawing false comparisons. Many high paying jobs are accompanied by high stress (doctors, lawyers, CEOs of failing banks, etc.), which might cause enough unhappiness to offset the happiness of increased pay. The only thing we can determine by simply changing the subject’s income is that, say, doctors are happier making $100k a year for their services than making $20k a year for the same work, or that McDonald’s workers would be much happier if they took home $100k each year.

    -Third, and most troublesome, is that to be a true measure of the effects of shifting incomes on happiness, the participants would need to be chosen randomly. Otherwise, the volunteers who do participate might be substantially different from the overall demographic (they might be more adventurous or take pleasure in advancing scientific knowledge), which could skew the results. Of course, choosing a bunch of people at random and changing their income (and possibly their jobs, as per my second point) for an experiment would be morally questionable and highly illegal. And thank goodness for that; I for one don’t want some sociology professor to determine my income next year in order to see how I react.

  7. j6z3 says:

    Yea Ryan, great points.
    While money doesn’t buy happines, it certainly can make life easier by affording you more convenience.
    The point made that some people are just happier by nature is very true. These people would find a way to be happy no matter how little or how much they have.
    I’m not really a ‘happy’ person, but I have had much less than I have now and I will tell you from my point of view, more (money) is better. It provides me opportunites to do things I enjoy. However, not having everything you want isn’t a bad thing for humans, but I believe the key is balance. Figure out what you want and sacrifice in other areas and I believe the enjoyment of the thing obtained is sweeter because it isn’t easily available. This keeps if from becoming mundane and losings it’s happiness quota.

  8. Harrison says:

    I don’t believe that more money equals to more happiness. But I believe that money can cut down a lot of problems in our life which can reduce some problems for life.

    To be honest, I’m a person who wants to be financial free and wealthy. But I’m not just set my goal to be wealthy in finance. But also in relationship, health and spiritual. In fact the true “wealthy” should cover all the aspect in life.

  9. Rick says:

    Folks, most people who earn a $100K/yr (or greater) income usually have demanding schedules. Yet, on the other shoe, that doesn’t say anything about the money in itself, it says that demanding work (50+ hrs/wk and a lot of stress) doesn’t lead to long term happiness. I doubt you’d get much disagreement there.

    Now, here’s the contrast, I know an independent future’s trader, who works 8 hours per week (yes, at most one business day in week’s time), for a $100K/yr income. Sorry folks, but I’d never seen a happier person. He teaches martial arts, writes, travels, and does whatever he wants with his time. Does money bring happiness? It certainly can.

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