Money can’t buy you happiness but it helps
Studies suggest people do not necessarily become happier as their income rises. After a certain income, which tends to be around the average for a society, the increase in happiness associated with each extra euro gets progressively smaller. Furthermore, people underestimate the happiness of people on lower incomes.
Ben Bernanke, the chairman of the US central bank, covered many of the factors explaining happiness in a speech earlier this month. While acknowledging many other important factors that contribute to happiness, he notes: “higher income equals a higher standard of living, which most people desire.”
The majority of respondents to the latest eZonomics poll seem to agree. An extra €10,000 per year can make you happier. But don’t overestimate the effect. Ane beware, a higher income may tempt you to take on more debt that, in turn, can cause worries and reduce happiness in the future (especially if the extra income is lost).
It’s all relative
The extra €10,000 is more likely to bring you greater happiness if you are one of only a few to receive it. If many people gain, your wealth compared with others will not change greatly and neither will your happiness. Studies have shown that people tend to compare themselves against others to assess how wealthy they are.
Comparisons can be dangerous
This tendency to compare carries risk. For those who gain, there is a danger that the money is wasted. Those who do not get the extra money see their lucky friend or neighbour spend more freely and are likely to spend more as well, even though they do not have the extra money.
Enjoy a windfall by giving it away
Harnessing the happiness associated with extra money requires some discipline. Avoiding excess debt and not neglecting your friends and community appear more important than having extra money. Strangely, giving a noticeable amount away has also been shown to increase your happiness.