How Much Money Is Enough For Happiness?

Richard A. Easterlin in his paper “Economics of Happiness” *1, wrote that when people were asked in surveys the question “Does more money make people happier?” the most of them gave confirmative answer, although there is a twist. When asked how much more money they would need to be completely happy, people typically named a figure 20% greater than their current income.

    Later named the Easterlin Paradox *2, it states the following:
  • Within a society, rich people tend to be much happier than poor people.
  • But, rich societies tend not to be happier than poor societies (or not by much).
  • As countries get richer, they do not get happier.

Easterlin argued that, although the result confirms the economists' assumption that more money makes you happier, the life cycle result contradicts it.

The paradox is arising from our psychological tendency to compare ourselves with those with whom we come in closest contact. As life progresses, our contacts are limited to those with similar income, and our happiness level remains unchanged.

Professor Paul Bloom, in his lecture on “The Good Life: Happiness” *3, says the following:

So, the first moral of the science of happiness is that your happiness is actually rather fixed. It's fixed, in part, genetically, and it's fixed, in part, because what happens in your life you'll get used to, to a large extent.

The second one is: happiness is relative. As long as your country — as long as you're not starving to death, it kind of doesn't matter how rich your country is for how happy you are.

If you're desperately poor, no matter where you are, no matter who's around you, you're not going to be happy. But, beyond that, your happiness depends on your relative circumstance. And this is an old insight. H.L. Mencken wrote, "A wealthy man is one who earns a hundred dollars more than his wife's sister's husband." The idea is what matters isn't how much you make. What matters is how much you make relative to the people around you.

And they've asked people following question.
What option would you prefer more, having in mind that your current salary is $70,000? To make ...

Does it matter how much money you bring home, or does it matter how much money you make relative to other people?

They prefer to be making less, if they're making more than the people around them. It turns out that there's research on British social servants and their happiness and their health and the quality of their relationships and how they love their lives doesn't depend on how much money they make. It depends on where they are relative to everybody else. *3

Easterlin also explains that we decide on how to use our time based on a "money illusion": the belief that more money will make us happier, failing to see that we will never meet these expectations, as they will rise with time in regards to our own income and the income of our contacts.

Because of the money illusion, we are running in an endless treadmill, allocating an excessive amount of time to monetary goals at the expense of time that could really make us happy such as — family life and health.

Although we cannot do much about our genetics or personality, all of us have the potential for managing our lives more efficiently to produce greater happiness.

The pursuit of money is an inbuilt property of the current system — that is advertised as the point of the game. That is what the system thought, trained, and prepared us to do. It is no wonder that, later in our lives, most of us just do exactly what is expected of us.

If we would change the rules, would that change the present state to a better one?

We are definitely shifting toward a moneyless society, and that train is not stopping for anyone. Automation will take over most jobs, and the biggest challenge for the majority will be what to do in a society which does not require us to work and, more importantly, how are we going to manage access to resources in such a society.

At this point, it would be interesting to find out how people would answer the above surveys, if they were selected from those who already receive Universal Basic Income. Would the outcome change if those questioned were chosen from a group of people who love the jobs they do? Would the results change, or would they compete for money in the same way, trying to be “above” their co-workers?

These are important questions for a future “economics of happiness” study, and with the pace at which we are moving, we won’t need to wait for long.

“Most people could increase their happiness
by devoting less time to making money
and more to non-pecuniary goals,
such as family life and health.”
Richard A. Easterlin

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