Can Money Make Us happy? Psychologist Jacqui Maguire’s Answer May Surprise You

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25 November 2022

Reading Time: 5 minutes

What’s your answer to this curly question that’s been challenging thinkers for years? Psychologist Jacqui Maguire thinks that new scientific evidence on this much-debated subject might surprise you.

Does money buy you happiness? Before you read the evidence I’ve uncovered, think about your gut reaction to this question. The hopeful, inclusive answer would be “No, of course not!” If stacks of gold coins and $50 bills had no impact on how happy we feel, and our satisfaction with life came from factors like relationships, daily habits, being adventurous and having purpose and meaning, our financial circumstances would not limit our happiness. However, if the answer is “yes” what does that mean for people who are financially struggling and have no obvious way to increase their wealth? Is there another way for them to achieve happiness, or are they inevitably headed for hardship and sadness?

Psychologist Jacqui Maguirea

Given the rising cost of living, it’s a question that is relevant to all of us, and it’s also something that’s been on the minds of economists, psychologists and the general public for decades.

My guess is that your answer will be that money matters to a point – that’s been the traditional wisdom. The thinking has been that once your income reaches a certain level, more money won’t make you happier. In 2010, researchers from Princeton University announced that your financial position improves your happiness up until you reach an annual income of $NZ118,000 ($US75,000), and after that the relationship between money and happiness becomes insignificant. Once you’ve met your basic needs, such as shelter and food, it was factors such as relationships and experiences that mattered most to your sense of wellbeing, they suggested. That fits with Maslow’s influential but much debated “hierarchy of need”, which suggests you can’t concentrate on improving your self-esteem or reaching your full potential if you are worried about not having access to the basics.

Over the past two years however, new research is turning old thinking about money and happiness on its head.  In 2020, large-scale global research by Wharton at the University of Pennsylvania showed that higher incomes were linked to higher wellbeing. Researchers broke this down into what they called “experienced” wellbeing and “evaluative” wellbeing and found that more money improved both. Evaluative wellbeing captures how satisfied are you with your life in general. Experienced wellbeing refers to the level of positive and negative emotions that you experience day-to-day (such as how often you feel happiness, confidence, interest, pride and inspiration or how frequently you are bored, sad and upset ). This research showed no financial plateau effect  – those earning over $NZ118,000 continued to experience greater levels of wellbeing of both types. This was a robust piece of research, involving 1.7 million data points collected from more than 33,000 people, who provided in-the-moment snapshots of their feelings during daily life (rather than retrospective reflections which are less reliable).

How does it work?

If money is linked to happiness and increased feelings of wellbeing, why is it the case? Perhaps financial freedom enables you to access more adventurous and novel experiences, finer dining and exposure to the arts, which all provide hits of positive emotion that boost your overall wellbeing.

I personally think there’s more to it than that – think about all the worries that money can free us from. Harvard Business School assistant professor Jon Jachimowicz’s research found that money reduces how intensely we experience distressing events and brings a greater sense of control, which is important because we know that autonomy is linked to wellbeing. “It’s not that people with money don’t have problems,” Jon says, “but having money allows you to fix problems and resolve them more quickly.”

It’s interesting to take Jon’s research and apply it to life in New Zealand. Think about a family where both parents work full-time, where young children need to be in full-time care or older children are kept busy lots of out-of-school activities. Imagine the household admin that needs to happen smoothly in the background to keep that family going. Supermarket shopping, cooking of family meals, laundry (oh the bloody laundry, that resonates with me… our family of four does at least two loads a day). Daily stresses have a major impact of happiness and wellbeing. It makes sense that those who earn more can outsource the chores, reserving energy for friends and parenting, and making time for doing things you enjoy yourself. Those who can’t afford to pay for help, must carry that heavy load themselves, or rely on the support of friends and family which comes with its own inherent challenges, and might leave you feeling guilty. Money also makes life easier if the car breaks down, the roof leaks or someone needs an emergency trip to the dentist.  

So what does this mean for all those Kiwi families earning under $118,000 this year. Is achieving happiness and wellbeing out of reach, or is there another pathway that doesn’t rely on money. 

Firstly, it helps to remember that even though “happiness” was what the research was looking at, we aren’t designed to be permanently happy. All emotions are transient, designed to ebb and flow. And happiness is not the only emotion linked to wellbeing. How you view your life, your level of life satisfaction, your general health, how often you experience positive emotions and the strength of your relationships all contribute to your wellbeing. A helpful way to think about it is to focus on building a “well life” rather than a “happy life”.  Ask yourself, if you felt as though you were physically and mentally well what would this mean for you? What would you be doing to maintain your wellbeing? How would you notice the benefits?

All about meaning

Other new research released this year from Stanford University in the US, showed that having meaning and purpose in life was a greater predictor of happiness for those on lower incomes. People with more money may report being happier, but people with less money view happiness as tied to a sense of meaning ­– the belief that their life has purpose, value and direction. Remarkably, the researchers showed this effect was consistent across much of the world. Given the financial struggles that are occurring all around the world, this is research that can give us hope. Regardless of your income, you can cultivate happiness through meaning – by reflecting on what is important to you, on the legacy you wish to create in your life, on the impact you want to have on your community around you.  As Nietzsche said: “He who has a why to live for can bear almost any how.”

So where does this leave us? Money can make you happier, by giving you more positive experiences and reducing the impact of stress. It is important we acknowledge that. However, there are limits to what we can expect money to do for us. Money will not buy you meaning, love, passion or appreciation. It will not buy you health without effort, morality or trust. It will not buy you loyalty, wonder or intimacy. Those elements are cultivated from within and are enduring.

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