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Money makes many things: Is it possible to buy Happiness?

Many people believe that money can’t buy happiness, but a growing body of research shows that there are strong and versatile links between finances and psychological well-being.

Based on scientific data, we talk about how money affects our psyche.


Poverty makes people unhappy

Scientists have long discovered the relationship between poverty and mental illness: job loss and a decrease in income increase the risk of depression and anxiety.

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To give just a couple of examples, in rural areas of Indonesia, the loss of crops due to bad weather and the resulting loss of income regularly causes an increase in the number of suicides and cases of depression. The closure of factories in Austria has led to an increase in the consumption of antidepressants and the number of hospitalizations related to mental health.

The mental problems of needy parents pass on to their children. A large Australian study spanning 30 years found that those who grew up in poor families were three times more likely to suffer from depression and anxiety even after adulthood. Similar conclusions were reached by British researchers who analyzed the fate of more than 6,000 children born in 2000.

Apparently, poverty is so dangerous for mental health because of the chronic stress caused by the increased uncertainty of the future. It makes the nervous system more sensitive: typical physiological responses like increased cortisol levels, blood pressure and heart rate work even if there is no big threat. For example, due to a skirmish in the queue or the loss of a small amount.

The longer a person is under stress, the more time he needs to recover. The body is in survival mode, in which there is no place for peace and happiness.


Wealth does not always bring happiness

However, a high income does not mean that a person is happy. In the early 1990s, the book The Pursuit of Happiness by American psychologist David Myers was published, in which he examined how various factors, including financial status, affect emotional well-being.

To demonstrate that money is far from being its main element, a graph with two curves was enough for him: the income of Americans since 1956 and their subjective level of happiness. During this time, incomes more than tripled, and the number of happy people only decreased.

Other studies on the very wealthy have also shown that high income does not guarantee happiness. Harvard Business School professor Michael Norton asked about 2,000 people worth $1 million or more how much money they need to be happy. The vast majority of millionaires answered that two or three times more than they have.

To explain why low income guarantees dissatisfaction with life, and high income does not guarantee the opposite, scientists have suggested that there is an income bar, after which money does not affect happiness. In 2010, Nobel Prize winners in economics Daniel Kahneman and Angus Deaton showed that Americans’ life satisfaction stopped rising when incomes reached $75,000 a year—at the current exchange rate of $90,000 ( R9,523,116 ). 

But this bar is controversial. Some studies confirm that it is , while others do not find it. Apparently, this contradiction is caused by the fact that scientists define happiness differently : for some it is a sense of meaning in life, while for others, like for Kahneman and Deaton, it is psychological well-being based on the predominance of positive emotions.


What matters is not what your salary is, but how much more it is than your friends

A meta-analysis of 357 studies with a total of 2.3 million participants showed that those who earn more than their acquaintances are more satisfied with their lives: it doesn’t matter how much it is.

If the level of income grows for everyone, this brings a person much less positive emotions than if the income increases only for him. The Norwegians felt this first hand: in 2001, the tax reporting of any person became available online – to find out how much a neighbor earns, it was enough to go to the tax website.

Over the next 12 years, this site became one of the most visited in the country. The researchers found that subjective happiness was more related to income for people who used good quality internet and could find out about the salary of others than for those who spent little time online.

As a result, the gap in the level of happiness between the rich and the poor has grown by 29% in the country: comparing their incomes with those of others, the former felt happier than before, while the latter, on the contrary, were less satisfied with life.

People are guided by the standard of living of others. If they cannot maintain it, they experience a sense of relative deprivation. This is what drives many to spend money not on basic needs, but on things they can barely afford.

Millionaires are also subject to relative deprivation. Brooke Harrington, a researcher who studies the habits of the very wealthy, says they rarely question “do I have enough money to buy the expensive things I want?” They are gnawed by another question: “Do I have less money than the people with whom I compare myself?” This affects consumer behavior: they buy very, very expensive things not for pleasure, but in order to maintain their status.


The level of happiness probably depends on the source of money

There aren’t enough studies yet to say for sure, but there is already work showing that the source of income is important for self-perception. A study of 4,000 millionaires found that those who made their own wealth rather than inherited it or through marriage were happier.

Psychologist Arber Tasimi’s experiments have shown that a dollar received from a nice guy is valued more than a dollar involved in shady transactions – and even five-year-old children are prone to such assessments. Moreover, the moral evaluation of money leads to different behavior: money received in an honest way pushes people to generous and fair deeds, and “dirty” money – exactly the opposite.

Most people would prefer to earn a crystal clear income, but if the amount becomes too attractive or if the environment often allows itself too much, many are ready to deal with their consciences. In this case, the brain triggers reactions in the prefrontal cortex , which allow you to rationalize the most irrational choice. But despite great efforts, it is unlikely that this money will bring a person as much pleasure as earned honestly or ethically.


Saving makes us happier

There are two extremes: live for today and spend money on pleasures, or save and periodically deny yourself pleasure. It would seem that in the first case there are more chances for a positive attitude, but the statistics say otherwise.

Researchers polled 585 British bank customers about how satisfied they are with their lives. It turned out that having a decent amount in the account is much more important for this satisfaction than a high salary in itself.

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High-paying clients who spent money instead of saving were less happy. According to scientists, the point is free access to money: the idea that money is available at any time and in order to get it, you do not need to apply for a loan or sell a car, relieves anxiety.

The more money you have set aside, the better for your attitude. Although even small amounts will improve the situation. A US study of 12,000 participants found that even saving $500 increased life satisfaction by 15% compared to no savings at all.


It is better to spend on experience and communication than on material things.

Hedonic adaptation is a psychological phenomenon that causes people to get used to a new level of comfort and stop appreciating it. If you have bought a new gadget, as a rule, the joy of owning it fades pretty soon.

Research shows that money spent on new experiences brings much more joy. The effect of retrospective pleasure works – when memories of an event increase mood and level of satisfaction with life. At the same time, expenses can be of different sizes – a voucher to the sea or movie tickets: the main thing is that the new experience brings pleasure or reinforces a person’s positive ideas about his own personality.

It is especially worth spending money on new experiences to share with family or friends: going to restaurants, exhibitions and other places with them will make our evolutionary mechanisms work for a positive attitude. Humans are social creatures, and for most of human history, good connections with others increased the chances of survival.

Today, loneliness does not pose a threat to survival, but still, all the activities that help us to improve contact with others bring the most happiness.

However, there is an important exception to these rules. People with low incomes – in the US it is less than $ 2,500 per household per month – are still more satisfied with material purchases. Most of these respondents would rather get a TV or a new pair of shoes than a free weekend trip. So it makes sense to invest in a new experience only when the basic needs are satisfied.


Saving time is more important to happiness than money.

A few years ago, an experiment was conducted in Canada with 60 working adults. Each of them was given $80. Half of the amount should have been spent on time-saving things, like ordering lunch delivery instead of cooking it yourself, and the other half on any material thing. It turned out that on those weekends, when the respondents saved time, their mood was much better.

Scientists attribute this to a decrease in time pressure, because lack of time is a common stress factor. But, as the polls show, very few realize it. The same researchers found that only 2% of respondents would prefer to spend $40 to save time, the rest wanted to buy something material.

Larger studies also speak to the psychological value of time saved. In 2017, scientists interviewed 6 thousand people from different countries. They were asked questions about how satisfied they are with life and whether they have items of expenditure to save time.

It turned out that those who ordered ready meals at home, hired cleaners and used other services to save time, felt happier. An important detail: this conclusion is true not only for rich people, but also for those whose incomes are below average.


Money better spent on others

It may seem odd at times that billionaires want to give away the majority of their wealth to charity, but research from Harvard Business School shows that it helps them increase their happiness levels.

And this does not only apply to people with very high incomes. A famous study of 632 Americans showed that those who spent money on charity or just other people rated their level of happiness higher. The more was spent for these purposes, the more noticeable was the result. At the same time, the amount spent on oneself had no effect on the level of happiness.

Even a single waste can have an effect. At the University of British Columbia, a group of students were given various – not very large – sums and instructed to spend them on themselves or on others for the rest of the day. In the evening the students were tested. Those who spent all their money on others were in a better mood. Moreover, it did not depend on the amount spent.

Why does spending on others have such a positive effect on us? When we donate money, the striatum and orbitofrontal cortex are activated in the brain – the same areas that work when we receive a reward.

These zones are activated both in cases where money is transferred to charity on a mandatory basis, for example, along with taxes, and when it is a personal choice. But in the second case, the activity of the zones is much higher.

Psychologists explain it this way: when we show sincere concern for others, we are convinced that we can make the world a better place. The feeling that we can control the situation and influence it improves our emotional state.


Big lottery wins can bring happiness

There is a stereotype that winning the lottery big is more of a challenge than luck. It appeared because of stories leaked to the yellow press about suddenly rich lottery participants who ended up in drug treatment clinics, as well as because of conflicting research results. Some of them showed that lottery winners had a sharp deterioration in health , an increased risk of depression , and  the level of happiness did not change.

But all these studies were conducted on isolated cases and are not confirmed when looking at larger samples. In Sweden, 3,362 lottery winners were selected, winning between $100,000 and $2 million.

The researchers followed them from 5 to 22 years after winning. Throughout this period, they maintained high levels of happiness, life satisfaction, and psychological health. The only indicator that has declined over time is financial satisfaction.

Similar conclusions were made by researchers in Germany: people who won significant sums, as a rule, are satisfied with their lives.


Meaningful work is more important than a high salary

Work greatly affects the psychological well-being of a modern person. Pointless work or, more precisely, the perception of it as such is one of the main factors in the development of depression. And in this case, a high salary will not help to maintain life satisfaction.

Working with meaning is not only the field of medicine or charity. Researchers describe its characteristics as follows: the opportunity to reveal one’s potential, a positive effect on society and the possibility of high career advancement. So when choosing a job, you should pay attention not only to salary, but also to these criteria: it is quite possible that an offer with a low salary will make you happier in the end.

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90% of Americans are willing to donate 23% of the income they earn for the rest of their lives to make their work worthwhile. Ultimately, meaningful work has a positive effect not only on mental health, but also on physical health: at least people who consider their work meaningful are less likely to take sick leave.

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