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  • 5m.

    Can Money Buy Happiness?

    Studies indicate that your income does influence your happiness, but the size of your wallet is far less significant than the things that you do with it.
    Updated: February 19, 2016

    What You'll Learn

    • How your income influences your well-being.
    • The relationship between your money and your "needs."
    • Whether you should savor the moment or save for later.
    Person holding present and red rose behind their back

    Between 2008 and 2009, a couple of researchers at Princeton University conducted a study on the influence of income over happiness. Their findings may shock you: People who have money tend to be happier than those who live in poverty.

    OK, OK, so you probably could have reached the same conclusion without conducting 450,000 interviews. But here's something you might not have known: Once the income of an American household surpasses $75,000, there is unlikely to be a correlative effect on the inhabitants' overall happiness.

    So why, then, do most of us strive to earn so much more than that? Some argue that it's a biological predisposition, combined with cultural values that encourage not only wealth but also extreme wealth. Others say that it comes from generations of ingrained family values.

    Whatever the case, it seems as though we are all under a great delusion—that no matter how many times we hear the mantra "money can't buy happiness," we inherently believe that there is some sort of connection between buying whatever we want and feeling good. It's one of the primary motivations for choosing to go to college—so you could use your qualifications to land a better job, earn more money, and gain the social standing that comes with it.

    But as it turns out, the size of your income is far less significant than what you choose do with it. That's the thing that could really define your happiness.

    Money And Your Hierarchy Of Needs

    In 1943, a psychologist by the name of Abraham Maslow inadvertently explained the $75,000 rule in a paper titled, "A Theory of Human Motivation." His idea was that humans are motivated by unsatisfied needs, and that certain lower needs must be satisfied before the higher needs can be addressed.

    At the bottom of Maslow's hierarchy are things like food, water, and shelter—basic needs that are easily satisfied, if you have enough money to throw at them. However, when it comes to satisfying your higher order needs, like social connectedness and vitality, money is not the greatest motivator.

    Let's say you buy a new laptop. This will provide you with some amount of joy. However, as you get accustomed to seeing and using the laptop, that joy can fade. Then, your friend buys a slightly newer laptop, with a slightly better screen resolution. All of a sudden, yours looks worse in comparison.

    That's why scientists believe that enriching your life with experiences, rather than material possessions, is a far better investment in your future happiness. Experiential purchases have an intrinsic value that is unlikely to fade with time. And they don't have to be big or extravagant, either. When you meet a friend for a coffee, or go out to see a film, you invest in memories that will likely outlive the joy you gain from the amount of pixels in your laptop display.

    Savoring The Moment Vs. Saving For Later

    We've all heard the dangers of living beyond one's means and spending more than you can afford, but consumer psychologists believe it is possible to become too frugal as well. Since the recent recession, growing numbers of Americans are said to have been conserving all their money for long-term financial goals and avoiding any kind of purchase that might be viewed as impulsive or wasteful.

    Normally, it's really good to have this kind of discipline, but Professor Ran Kivetz of Columbia Business School and assistant professor Anat Keinan of Harvard Business School believe that our happiness depends on splurging on stupid purchases every once in a while as well.

    In a 2009 study, Kivetz and Keinan explored the regrets experienced by college students over their work-life balance. The subjects—a mix of current students and alumni—were asked to recall a past winter break: how they spent it, and how they wished they had spent it. The students who thought they should have worked more and spent less money felt their regrets subside as time went on.

    Conversely, those who felt they worked too hard, and wished they'd spent more time enjoying the fun aspects of college life, found their regrets only got stronger as years passed. The conclusion was that "oversaving" could lead to increased regret later in life, when one looks back at all the opportunities they may have missed.

    Wealth Is Not An End Unto Itself

    So, how do you make sure you have the right balance of material possessions and life experiences? Unfortunately, there is no easy answer. It is obviously wise to try and conserve your money and only spend what you can afford. But it is also possible to become so driven by financial rewards that you're unable to truly enjoy them.

    Anat Keinan believes that we should think of the emotional investment in our purchases before we go through with buying them. Reflect on how you might feel about a purchase 1 month later. Or 2 months later. Or 5 years later. And know that there is nothing wrong with straying from your budget from time to time so you can use your money just for fun. Because really, if you never have a chance to enjoy your money, why do you work so hard to get it?

    Actualizado: 19 febrero 2016
    Person holding present and red rose behind their back
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