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Money and happiness: Does more money really make us happier?

Nikos Melachrinos
Money and happiness: Does more money really make us happier?

Illustration by Olga Semklo

It’s a common discussion whether money buys happiness. At one point or another we've all wanted more money, thinking it would solve many of our problems. There's been fascinating research looking at the links between money and happiness from psychologists and behavioural economists.

Is too much money a thing?

The first widespread research study on the topic came from Dan Kahneman and Angus Deaton, Nobel winning economists who first discussed a “satiation point” - the point at which greater household income is not associated with greater happiness. That number was $75,000 (about £60,000) as the study was conducted in the US. Interestingly, this research prompted CEO of Gravity Payments, Dan Price, to decrease his own salary and raise the minimum salary of his company to $70,000 (he might have misread the number on the paper!).

A more recent study from 2018  used Gallup’s World Poll data and surveyed over 1.7 million individuals and this time around the world. Beyond improving upon the original research for geography and members in a household, they found that “satiation” occurs at $95,000 - as a global average. In the chart below you can see regional breakdowns.

A chart depicting the different satiation points, where more income does not equate to more happiness, in different countries. Australia& New Zealand top the list with $125k and latin america at the bottom with $35k.

What was novel about this paper is that the researchers separated the understanding of happiness as  life evaluation and emotional well-being. Life satisfaction is measured using a thought experiment in which someone imagines a ladder with steps labelled 0–10, where 0 represents the ‘worst possible life’ and 10 is the ‘best possible life’. People then indicate at which step of the ladder they personally stand at the present time. This author stands at an 8.

Emotional well-being was measured by asking people whether the previous day they felt primarily happy/joyful or stressed/sad.

The satiation point was measured as $95,000 when looking at life satisfaction and $60,000 to $75,000 for emotional well-being. It’s quite fascinating to look at it through these 2 new lenses. 

It's not about how much you spend, but how you spend it. 

Spending according to your personality - the way forward?

A study that we’ve really enjoyed here at Quirk came from Cambridge University in which researchers Sandra Matz and Joe Gladstone found that people who spent more money on purchases which matched their personality were happier. What’s even more fascinating is that matching spending with personality showed a bigger effect on someone’s happiness than their income or total spending. Namely, it's not about how much you spend, but how you spend it. 

Generally the study showed that people’s spending would match their personality. For instance, someone extroverted spent approximately £52 more each year on pub nights than someone introverted.

“Our findings suggest that spending money on products that help us express who we are as individuals could turn out to be as important to our well-being as finding the right job, the right neighbourhood or even the right friends and partners,” said Matz.

The idea of this study matches well with wider research in psychology around ‘cognitive congruity” - that behaving in accordance with your personality and values makes you a happier person. Most research indicates that  personality traits remain the same over time. However, some personality traits do change and this will have an impact on what things, activities, and spends you derive the most happiness from.

This philosophy is deeply connected to Quirk's mission of making money personal. Because our personalities do have a huge effect on how we behave and make decisions. If you haven't already, make sure to take our money personality test.

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