Can money make you happier?

How happy people said they were over the last 30 years, by country

In his new book, The price of civilisation: reawakening American virtue and prosperity, progressive Columbia University economist Jeffrey D Sachs argues that the relationship between income and happiness is not as strong as people often imagine. Above a (lowish) minimum level, income doesn’t make a big difference.

But money could make us happier if only we’d spend it in different ways. Drawing on the research of Harvard psychologist Daniel Gilbert and his colleagues, he cites eight principles for deriving more happiness from your income:

First, buy experiences instead of things, since experiences (vacations, trips to the museum, concerts, dining out) offer long memories to savor.

Second, and crucially, use our incomes to help others instead of ourselves, because as hypersocial animals, “almost anything we do to improve our connections with others tends to improve our happiness as well.”

Third, buy many small pleasures instead of a few big ones, in essence slowing down to smell the roses.

Fourth, buy less overpriced insurance (such as product warranties), because we adjust much better to adverse shocks than we suppose.

Fifth, pay now and consume later, rather than buying now on the credit card and paying later. The anticipation of a future purchase will give us anticipatory joy, which the authors call a source of “free” happiness. Impatient purchases, on the other hand, give us fleeting benefits and long-term debt.

Sixth, be attentive to the details of a purchase, since they may disproportionately affect the happiness of the experience.

Seventh, beware of too much comparison shopping, since it can focus our attention on unimportant distinctions.

Eighth, listen to others about what can bring happiness. They can add new and useful perspectives

The source of these principles is a paper published earlier this year in the Journal of Consumer Psychology, If money doesn’t make you happy then you probably aren’t spending it right, by Elizabeth Dunn, Daniel Gilbert and Timothy Wilson. If you follow that link you can read the complete paper (it’s not technical and it’s not very long). Here’s the conclusion:

When asked to take stock of their lives, people with more money report being a good deal more satisfied. But when asked how happy they are at the moment, people with more money are barely different than those with less…..This suggests that our money provides us with satisfaction when we think about it, but not when we use it. That shouldn’t happen. Money can buy many, if not most….of the things that make people happy, and if it doesn’t, then the fault is ours. We believe that psychologists can teach people to spend their money in ways that will indeed increase their happiness, and we hope we’ve done a bit of that here.

Note: the quote from Jeffrey D Sach’s book is from page 127 of my electronic edition. I’m not sure if paper copies will be the same, but if not it’s at the start of Chapter 9, The Mindful Society. Random House will publish the book in paperback in Australia on 1 December – note that I’ve linked the book to Amazon above because Random House Australia has the cover right but the blurb is about a different book altogether!

Jewel goes undercover

Click through to video

One of the most popular recent articles on The Melbourne Urbanist was one on happiness (What makes you happy?) that I put up back at the start of the month.

It was based on a research paper which looked at which events have the highest positive effect on happiness.

This video is more practical – it shows what unalloyed delight and elation look like. It covers the singer Jewel singing her own songs incognito at a karaoke bar.

The excitement of the patrons when they hear how good this apparently ordinary woman is at singing Jewel’s songs is a joy to behold.

What makes you happy?

This question is important to everyone, including those most concerned with urban policy (believe it or not). One answer, which emphasises the dynamic over the static, is in this paper by Dimitri Ballas and Danny Dorling, Measuring the impact of major life events upon happiness, International Journal of Epidemiology, 2007, 36(6) 1244-1252. Here’s the authors’ summary:


In recent years there have been numerous attempts to define and measure happiness in various contexts and pertaining to a wide range of disciplines, ranging from neuroscience and psychology to philosophy, economics and social policy. This article builds on recent work by economists who attempt to estimate happiness regressions using large random samples of individuals in order to calculate monetary ‘compensating amounts’ for different life ‘events’. We estimate happiness regressions using the ‘major life event’ and ‘happiness’data from the British Household Panel Survey.


The data and methods used in this article suggest that in contrast to living states such as ‘being married’, it is more events such as ‘starting a new relationship’ that have the highest positive effect on happiness. This is closely followed by ‘employment-related gains’ (in contrast to employment status). Also, women who become pregnant on average report higher than average levels of subjective happiness (in contrast to ‘being a parent’). Other events that appear to be associated with happiness according to our analysis include ‘personal education-related events’ (e.g. starting a new course, graduating from University, passing exams) and ‘finance/house related events’ (e.g. buying a new house). On the other hand, the event that has the highest negative impact upon happiness according to our analysis is ‘the end of my relationship’ closely followed by ‘death of a parent’. Adverse health events pertaining to the parents of the respondents also have a high negative coefficient and so does an employment-related loss. Read the rest of this entry »

What makes people happier – money or status?

A new study by researchers at the University of Warwick finds that money only makes people happier if it improves their social rank.

A well known example of this effect was documented by economist Robert H Frank. He asked people if they would prefer to live in a 4,000 ft2 house where all the neighbouring houses were 6,000 ft2, or in a 3,000 ft2 house where all the neighbours lived in houses that were 2,000 ft2. A majority of respondents chose the 3,000 ft2 house – smaller in absolute terms than the first option but larger in relative terms.

Where being brilliantly avaricious counts most? (Cut paper)

This is not a new insight but I think it is very important that planners and architects appreciate it – in fact it is very important for anyone who has clients or who is involved in policy development and implementation. Status matters. The trick is to direct it in ways that are as environmentally, economically and socially benign as possible. Bicycles rather than BMWs!

The researchers were seeking to explain why people in rich nations have not become any happier on average over the last 40 years even though economic growth has led to substantial increases in average incomes.

Lead researcher on the paper, Chris Boyce from the University of Warwick’s Department of Psychology said:

“Our study found that the ranked position of an individual’s income best predicted general life satisfaction, while the actual amount of income and the average income of others appear to have no significant effect. Earning a million pounds a year appears to be not enough to make you happy if you know your friends all earn 2 million a year”

The study, entitled “Money and Happiness: Rank of Income, Not Income, Affects Life Satisfaction”, will be published in the journal Psychological Science. The researchers looked at data on earnings and life satisfaction from seven years of the British Household Panel Survey (BHPS), which is a representative longitudinal sample of British households. Read the rest of this entry »