by Ed Diener
The notion that money boosts happiness is not a phenomenon confined to people with private jets and impressive mansions. Data collected from everyday citizens in Germany show much the same trend. Our colleagues Richard Lucas and Ulrich Schimmack analyzed many years of happiness data from an enormous German sample and found that life satisfaction increases with income. Figure 6.1 presents these data on a 1-10 scale of life satisfaction. We found in past studies that once an individual is earning a middle-class income, money bought little additional happiness. However, Lucas and Schimmack did not confirm this trend. Folks earning $80,000 a year were more satisfied than their counterparts earning $60,000, and those earning more than $200,000 were significantly more satisfied than the middle class.
Figure 6.1 Life satisfaction, income. From Lucas and Schimmack (forthcoming)
Wealthy Nations
When we later examine the happiness of nations (chapter 8), we will see that all of the societies with the highest life satisfaction are wealthy ones, such as Ireland and Denmark, and most of the unhappiest nations are extremely poor ones, such as Sierra Leone and Togo. Indeed, the wealth of nations is one of the strongest, if not the strongest, predictors of the life satisfaction in societies.
Figure 6.2 shows the relation between the wealth of nations and the "ladder of life" score from Gallup's 2006 World Survey. The scale asks respondents to say where they currently stand on the steps of a ladder, shown below, which goes from zero, the worst possible life one can imagine for oneself, to ten, the best possible life one can imagine for oneself. As can be seen, there are a few somewhat poor nations with fairly high ladder scores. But all of the extremely poor nations are low on the ladder, and most of the extremely wealthy nations are high. There is no nation with an average income of less than $2,000 a year that has a life satisfaction as high as any nation with an income of more than $20,000 a year. For those of you who understand statistics, the Pearson correlation between income and happiness is .82, which is about as high as correlations ever get in happiness research! In other words, rich nations are, on average, satisfied, and very poor nations tend not to be. As we will see later, although money matters, other factors also influence the happiness of nations, and this is revealed by the fact that figure 6.2 does not show a perfectly straight line between money and life satisfaction.
Figure 6.2 The relation between the wealth of nations and the "ladder of Life" score from Gallup's 2006 World Poll: the scales ask respondents to say where they currently stand on the steps of a ladder
Lottery Winners
Rich people and nations are happier than their poor counterparts; don't let anyone tell you differently. But another way to analyze the effect of money on happiness is to examine the emotional well-being of those lucky souls who have won a large lottery. Most of us have heard the horror stories about how a sudden windfall can negatively influence a person's quality of life. At the same time, most of us find the possibilities offered by a lottery win appealing and few of us would turn down such winnings. The lottery is interesting to study because the winners are a random selection of ticket buyers, and so scientists can determine causality and rule out the possibility that happiness led to wealth, rather than the other way around. When we compare the happiness of ticket buyers who won with those who did not win, they are like randomized groups in laboratory experiments.
Winners of large lotteries are often in the news - first for winning, and then later if their life turns sour. Take the highly publicized story of Viv Nicholson. In 1961, Viv Nicholson of Castleford, England, struck it rich. Nicholson became the winner of what - at that time - was the largest lottery pool in Great Britain, totaling (in today's currency) about £3 million (roughly $6 million). Nicholson, as you might well imagine, was euphoric. She told anyone who would listen that she intended to "spend, spend, spend," a phrase that was later immortalized in a musical of that name inspired by Nicholson's life. The sad events that followed will be familiar to many British readers, and may seem predictable to others. Nicholson had a difficult time coping with her new circumstances, and became increasingly estranged from her friends. In a 1999 article in the British newspaper the Independent, Nicholson recalled this time: "Even my old friends left me. They didn't want people saying they were going about with me because I had money." Her life became a series of drinking and shopping sprees that, ultimately, landed Nicholson in financial dire straits. At one point, she escaped to Malta, but was deported for assaulting a police officer. Nicholson filed for bankruptcy, was married five times (once for only thirteen weeks), and eventually wound up working as a stripper and drinking heavily.
But the story does not end there. Viv Nicholson found religion, became an active member of the Jehovah's Witnesses, and began a new, more wholesome life. In the same article in the Independent, Nicholson described her new state of affairs: "I'm quite happy with my lot. I'm a happy chappy. I can make any situation happy. You don't have to have money to be happy." Whether she learned important lessons, or whether her newfound religion has given her renewed meaning, Nicholson appeared to be living a much more fulfilling life.
As Nicholson's story illustrates, it is a bit difficult to draw firm conclusions about the money-happiness relationship from isolated instances. It might be argued that her lottery wins caused her grief, or it might be said that they ultimately led her to a place of satisfaction. Perhaps we should examine another winner. The American Jack Whittaker won $314 million in the Powerball lottery in 2002, and hoped to make a positive impact on society by starting a charitable foundation. Jack's granddaughter died of a drug overdose after he lavished money on her, and he was sued by a gambling casino for bouncing checks. Like Viv, Jack did not seem to find happiness with his lottery win. Two years later, Jack had two arrests for driving under the influence, had been the victim of multiple burglaries, was estranged from his wife, had been arrested for assault, and had to close down his foundation. The problem with these sensational cases is that they might not represent average lottery winners; the media may find lottery winners newsworthy only when they make a mess of their lives. When lottery winners live happily ever after, we might never hear of them. What does the science say about the average lottery winner? Are lottery winners on average miserable or are our two examples exceptions to the rule that lottery winners are happy? Fortunately, several studies now have been conducted with this fascinating group.
In one study, conducted in Illinois, winners of moderate-size lotteries - those who won about $400,000 on average - were happier than folks in a control group, but the difference was small and not statistically significant. This study is quoted frequently to indicate that money does not help happiness. In a more intensive lottery study, however, the sociologists Stephen Smith and Peter Razzell found that people who had won large lotteries in the United Kingdom were happier than other people. These pools require an individual to guess a large number of soccer game wins for that week. When they were interviewed, the pool winners in the study sometimes mentioned problems that came with the money, such as losing a few of their old friends. But on the whole the winners' happiness was higher than that of a similar group of people who had not won lotteries.
In two other studies, conducted by the economists Jonathan Gardner and Andrew Oswald, the researchers found the same trend: people receiving small to medium windfalls were clearly happier, and this effect persisted over time. In their study, Gardner and Oswald used data from thousands of people who were being questioned time and again over a period of years. From this group, the researchers identified individuals who won lotteries during the course of the study. After analyzing the data, Gardner and Oswald found that two years after winning the lottery, people reported less unhappiness than they had before winning. In a second study, Gardner and Oswald found that those who inherited significant sums of money showed significant increases in happiness.
The Case That Money Does Not Equal Happiness
Despite individual instances where money seems to harm people, wi
th data like the happiness of multimillionaires and lottery winners, as well as the life satisfaction differences between rich and poor, why would anyone doubt that money is on average important to wellbeing? It turns out that there are also findings that point in other directions. For one thing, people in some poor societies are reasonably happy, at least above the neutral point. For another, it seems that rising desires for goods and services to some degree cancel the effects of greater income. Finally, we know that materialism can be toxic to happiness. We will describe these findings that indicate that money does not always equal happiness, and explore the costs as well as the benefits of money to explain why it is sometimes related to happiness and sometimes not.
City of Joy: The Happiness of the World's Poorest Citizens
The data from samples of rich people and lottery winners paint a positive picture of money and life satisfaction. At the other end of the spectrum, can homeless people and others living in impoverished conditions be satisfied with their lives, or are they doomed to an existence of psychological poverty as well? Some of our most interesting research was conducted with a sample of the poorest citizens in the world. In 2000, one of the authors, Robert, went to Kolkata, formerly known as Calcutta, to learn about the happiness levels of people living in dire poverty. Kolkata is a wonderful city, but is notorious for its widespread poverty, crowding, and noise. By some counts, there are more than a hundred thousand homeless children in the city, and as many as half of the 15 million inhabitants live below the poverty line. Many visitors to the city are overwhelmed by the vast destitution, and on occasions foreigners break down crying on the street. On the other hand, Kolkata has a reputation for inspiring heroism. Mother Teresa, the saintly nun who spent her life caring for the poor and dying, suggested that there is something worthwhile in every corner of life, no matter how humble. Dominique Lapierre wrote the famous novel City of Joy, in which the slum-dwelling protagonists fight valiantly against the crush of poverty.
In collecting data in India, Robert spoke with the street people and pavement dwellers of Kolkata. He visited people in make-shift shelters and spoke with women in blackened, windowless kitchens heavy with the smell of kerosene. He posed questions about happiness to sex workers and tea hawkers, to rickshaw pullers and people burdened with leprosy. He heard stories about foraging for scraps of cardboard to light a fire for cooking, and of police harassment. It is easy to imagine that these people were miserable. The data showed, instead, that they were slightly negative to slightly positive on scales of life satisfaction. While this certainly isn't the romantic notion of the joyful poor, it also contradicts the idea of a legion of despondent have-nots with an unmitigated black outlook on life.
We replicated the life satisfaction finding using three samples of homeless people: one from Kolkata; one from Fresno, California; and one from Dignity Village, a tent camp in Portland, Oregon. We collected happiness data from men and women in these locations and found that the two American samples were, on average, slightly dissatisfied with their lives, while their Indian counterparts were mildly satisfied. When we asked about satisfaction with specific life domains such as food, health, intelligence, and friends, we similarly found variation in the amount of satisfaction these people experienced. These results are both informative and reason for optimism. In short, this research indicates that, overall, being extraordinarily poor has a negative influence on happiness, but that some very poor individuals are, in fact, somewhat satisfied, and even extremely poor people are usually not depressed.
Which brings us back to the question: "Does money buy happiness?" How is it that many rich people are not extremely happy, and how can it be that some poor people are happy? The answers lie, in part, in the fact that there are many other influences on happiness, such as a cheery genetic disposition and having supportive relationships. That is, they may have the other components of psychological wealth even if they are missing money. And what of rich people who are unhappy? There are factors that can cancel the beneficial effects of money on happiness if people are not careful.
Wanting it All: Aspirations and Happiness
Money is more than a fixed amount of legal tender. Wealth is, in part, also about your desires. Being satisfied with your paycheck, just like being satisfied with your life, is about your point of view. We have one friend who leads wilderness trips. He lives in a simple cabin, spends much of his time outdoors, and only uses about $5,000 a year. Contrast this with another friend of ours who once spent $30,000 on a single hotel stay. Obviously, money and comfort don't mean the same thing to these two people. To better understand how money adds and subtracts from happiness, and why it does so idiosyncratically from person to person, it is important to consider aspirations. Take the following example.
We know two young couples in which both the wife and husband are professors in universities. One couple, whom we will call the Johnsons, earns a combined income of $90,000 a year, and the other couple, the Thompsons, earns $200,000 a year. The Johnsons are quite satisfied with their income, and feel it is adequate to their wants and needs. The richer Thompsons, making more than twice the money of the first couple, constantly feel strapped for cash and frequently argue over finances. The problem is that the Thompsons want more expensive luxuries and experiences, and thus end up feeling poorer. This is a perfect illustration of the research findings of the psychologists Wendy Johnson and Robert Krueger. The researchers studied the incomes and happiness of twins, which meant that they could parse out those pesky genetic influences that often contaminate research on happiness. What they found was surprising: the amount of money a person made only modestly predicted whether or not she was satisfied with her income. Some people with a lot of money could not meet their desires, and others with little money were able to do so.
This brings us to the famous formula:
This formula makes sense. It means that it doesn't matter so much if you make $20,000 a year or $100,000, if you drive a new BMW or an old Chevrolet - what matters more is that your income is sufficient for your desires. Of course, we know from the bulk of the research that it is generally better to have more, rather than less, money. But individual variation in desire helps explain why some poor folks are happy and some wealthy people are not.
Returning to the couples we described earlier, we can see that differences in aspirations lead to very different amounts of happiness. The couple with the middle-class income are quite pleased because they have modest desires. They are content with their large but old home. They drive a Toyota that runs well, and one spouse usually takes the bus to work. If the weather permits, the husband rides his bike to the university. Their leisure time is spent gardening, watching DVDs, driving to see relatives in nearby cities, and attending their children's extracurricular events. By contrast, the wealthier couple pine for expensive trips to Aspen and to Europe, lease new cars every two years, eat at expensive restaurants, dress themselves in the latest fashions, and own an enormous home on which they carry an equally large mortgage. Let's plug the two couples' incomes and aspirations into the happiness formula.
On a scale ranging from zero to ten, here is how the couples stack up in happiness:
Happiness of professors with high income:
$400,000 Desires: Foreign travel, luxury cars, expensive house, the latest electronic gadgets, private schools
Happiness of professors with good income:
$50,000 Desires: Modest house and car, some travel, social leisure, health insurance, and inexpensive lessons for their children
The "poorer" example is four times as happy with their money because they have more than their desires require. In contrast, the well-off couple has enough money to meet only half of their desires, and therefore they feel poorer. We saw a perfect illustration of the influence of aspirations when we conducted research with Amish people living in the American Midwest. The Amish are a group of German-speaking Christians who eschew many worldly goods and technologies. They farm without the use of tractor
s, use horses and buggies instead of automobiles, and choose kerosene lanterns over electricity in their homes. Most do not own televisions, computers, or telephones. The Amish live, in other words, a simple life centered around religion, hard work, and a sense of tight-knit community. They are famous for their frolics, or barn raisings, in which the community joins together to work on a communal building project.
We spent months in Amish country, interviewing the locals and collecting happiness data. Although the Amish live a more technologically simple existence than most readers of this book, they reported being satisfied with their lives. In fact, despite large families and relatively low earnings, the Amish reported being quite satisfied with their income, housing, food, and other material goods. Sophisticated urbanites probably look down their noses at simple Amish pastimes like quilting and donkey basketball, and may prefer instead Dom Mignon after an evening at the theater. But who is to say which one produces more happiness? It may be that they are both happiness producers for the same reasons - sharing common experiences with friends, in a pursuit that alters the rhythm of everyday life.
Clearly, there are well-off people who feel they don't have enough money, and there are people of modest means who feel that they have enough. The lesson here is that no matter how much money you earn, you can always want more, and feel poor along the way. Even if you make a million dollars a year, you will find that your desires have a way of slowly ballooning over time. You were once pleased with the studio apartment you and a friend shared in college. Then you were proud of your tiny ranch-style house. As you earned more, you graduated to a beautiful turn-of-the-century home in a fashionable part of town. Soon thereafter you found yourself wanting a vacation home at the beach. We see this same pattern of rising desires across the wealthy nations of the world.