Money Buy Happiness?

ASK FOLKS WHETHER money buys happiness and they almost always respond with a resounding “yes.” And the research suggests that they’re right—but maybe not to the degree they imagine.

If you lift people out of poverty, you can greatly improve their level of happiness. But from there, gains come more slowly, and it can take large sums of money to make someone measurably happier. A big reason is the hedonic treadmill: We quickly adapt to material improvements in our life.

Still, those with higher incomes and greater wealth tend to report that they’re happier. That suggests that happiness may hinge less on our absolute level of income and wealth, and more on where we stand relative to others. But there’s another possible explanation. Perhaps what we’re observing is a so-called focusing illusion: When you ask those who are better off about their level of happiness, they think about how fortunate they are and that prompts them to say that yes, of course they’re happy.

But are they? It may depend on what we mean by happiness. A higher income, as well as a greater level of education, can lead folks to evaluate their life more favorably. But these things don’t necessarily help with day-to-day happiness. In fact, those earning higher incomes tend to report that they suffer more stress and anger during the day—hardly hallmarks of happiness.

Even if more money helps happiness, many other factors are also at work. We all have a happiness “set point”—a predisposition to be more or less happy—and research suggests this explains 50% to 80% of our reported level of happiness. By contrast, our life’s circumstances, including the size of our paycheck, may explain perhaps just 10% of our happiness. What about the remaining portion? That’s the part we control. We can potentially boost our happiness by, say, spending more time with friends or finding a way to eliminate a long commute.

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