Stories | January 11, 2016

Do happy people manage finances better?

Studies suggest a certain level of income may be good for happiness levels and life satisfaction.

Parents sometimes tell their children “just be happy” – reflecting popular wisdom that putting finance first can limit horizons, or worse, corrupt morals. Yet a 2010 survey of 1,000 people by psychologist Daniel Kahneman and economist Angus Deaton – the latter the winner of the 2015 Nobel Prize for Economics – found that, up to a point, incomes rise with satisfaction levels.

Controversy continues
Many studies have been done and much of the research isn’t really clear on the relationship between wealth and happiness. In the Kahneman study, for example, the effect only held until earnings reached about $75,000 a year. 

What’s more, people tend to rate themselves against others. People tend to be less happy if they are aware that others, such as neighbours or even people seen on TV, are richer. In line with this idea, people who live in well-off countries aren’t necessarily happier either. 

People earn about $65,000 each in the United Arab Emirates, for example – but the UAE only came 130th in the New Economics Foundation (NEF) Happy Planet Index of countries in 2012. Costa Rica took the top spot, with earnings per person for 2014 estimated at $14,900.

Perhaps happy people earn more?
It’s also possible doing things that make us happy may improve other parts of our lives as well, including personal finances.

Happy people might make better decisions or be more productive, which may help them earn more.

Happiness also tends to correlate with good health. In this 2012 study, a “profoundly unhappy” adolescence is correlated with a 30% lower income at age 29 – and a “very happy” adolescence with later income that is 10% above average.

Gross national happiness
One problem is that no one really knows how to measure happiness anyway. But happiness levels are nevertheless important – so researchers continue to grapple with the concept. 

Global authorities like the OECD are developing economic indicators that include measures of wellbeing – balancing out the typical focus on things like gross national product. You can read the UN’s World Happiness Report here.

The Himalayan kingdom of Bhutan believes what is needed is a measure of gross national happiness. Bhutan calculates this by rating nine areas, including health, environment, and standard of living.

 Interestingly, the NEF Happiness Index was unable to rate Bhutan – “a nation which has achieved a great deal in terms of measuring progress differently”. According to NEF, data on the “Land of the Thunder Dragon” was not comparable with other countries.

Way of the Thunder Dragon?
The Bhutanese aim to work out for themselves what makes them happy – “distinct from the Western literature on happiness”, “setting an alternative framework of development” for their future plans. There seems to be no easy way to understand the connection between income and happiness.

One key might be to decide on the right personal balance for ourselves between money and happiness. Following our own path, we might all be less tempted to try to “keep up with the Joneses” or compare ourselves with others.

eZonomics team
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