Can Money Actually Purchase Happinessis?

It's one of the most fundamental components of our society. It affects how we act, how we feel, and how we spent 80,000 hours of our working lives. But one of the biggest myths about money is that we think that more money leads to more happiness. We think that getting a raise at work, or getting the sweet video sponsorship dollars is gonna make our lives better. But is it really that simple? How important really is money to happiness? This is one of the questions I've been thinking about a lot recently, especially as I started making money as a junior doctor and now as my income has increased, thanks to this READ CASH.

And when you're on this train of trying to get more success and trying to make more money and trying to get more, it's easy to have that view that says, "I just need to make more money, and then my life will be sorted and then I'll be happier."

But if you're anything like me and you enjoy reading pop psychology books and listening to interviews with celebrities who are rich but miserable, then you'll know that this relationship between money and happiness is complicated. So the thing we're gonna investigate in this article is, does money actually buy happiness?

Part one.

Yes, money does buy happiness. Now, I'm gonna cheat a little bit here and I'm gonna include a segment from Casey Neistat's where he talks about how money does buy happiness.

- Rich or poor, we all face these problems. Problems that I'll call life problems. Life problems are things like finding happiness, and finding love, and a sense of fulfillment in your life, and a sense of purpose maybe in your career, et cetera. These are life problems. These are problems we all, rich or poor encounter. Money won't solve these problems. But when you're broke on top of, and I mean that literally and figuratively, on top of these problems, you've got money problems. And money problems are things like, "How am I gonna pay rent? "How am I gonna pay for food? "I'm sick and can't afford to go to the doctor.” "I can't get a job so I can't drive to work.” "I don't have any nice clothes "to wear to that job interview," things like that.

- And he goes on to say that if you have these money problems, then they literally drown out all of the other life problems. And so if you have no money, then money literally does buy happiness because it solves your problems associated with money. And so if we draw a graph of money versus happiness, it starts to look a little bit like this. But then we come to an interesting question which is what is the upper limit here? Does money continue to buy happiness or is there a point beyond which having more and more money doesn't actually lead to more and more happiness?

Part two

To what extent does money actually buy happiness? Now, there's been a lot of studies that have tried to figure out this point of enough, like how much money do you actually need to be happy beyond which kind of further money isn't actually gonna increase your happiness? But the study I wanna draw your attention to is one from 2018 published in the Paper Nature, which is one of the world's most respected publications. And these guys looked at data from 1.7 million people in 164 countries. So this is a lot of data that we have to help answer this question. And if we look at the data in this paper, it shows us that there are three possible answers to the question of, does money buy happiness? Number one, does money buy happiness? Well, it depends on how you define happiness. So how do we actually define happiness? All right, so if you look at these various social science studies that have been done investigating the idea of happiness, essentially, they don't call it happiness, they call it subjective well being because the actual definition of happiness changes depending on who you are. And there's also a couple of different ways of measuring subjective well being. One of which is this idea of life evaluation. If you're trying this out for yourself, I want you to imagine a ladder with the steps labeled zero to 10, where zero represents the worst possible life and 10 is the best possible life. Where would you rate yourself on the scale of right now? This is called Cantril's self-anchoring striving scale, for whatever that's worth.

And this is one way of measuring someone's life evaluation. Now, interestingly, if you draw a graph of people's kind of life evaluation and you compare it with their kind of household income, you get this very interesting kind of shape. And you do get a point beyond which people who have more money are not saying that they would rate themselves higher in terms of life evaluation. And on average, that point is about $85,000 if you look at all of the different countries they studied. But apart from life evaluation, there's another way that psychologists and people who study this thing measure happiness. And that's the idea of affective or emotional wellbeing. Now it's quite hard to accurately assess your own emotional well being. And so what they do is that they ask questions like, "In the last week, how often did you laugh? "How often did you smile? "How often did you experience gratitude?" And they also ask questions like, "Yesterday, were you unhappy? "Were you stressed? "Were you anxious? And so they get a sort of combination of positive and negative emotions and turn it into a number. And simplifying all of this stuff, it gives us a score for someone's emotional wellbeing.

Now, if you graph people's household income against their emotional wellbeing, you find that, again, there is a linear relationship, but the cutoff point, the point beyond which more money doesn't lead to more emotional wellbeing, is about $55,000 per household. And we can imagine why this might be. Like if you imagine your best possible life, then usually you can imagine having a higher standard of living than you currently do which is why you probably need more money to kind of (indistinct) that like life evaluation thing. Whereas if you imagine emotional wellbeing, we can all appreciate that that's probably based on things other than your career success, or your salary, or things like that. And far more about things like relationships, and your hobbies, and the things that bring you enjoyment and fulfillment in your life.

Point number two, does money buy happiness?

Well, it depends what country you're in. So earlier I said that the average point for life evaluation beyond which money stops buying happiness is about 85,000 US dollars, but this varies massively depending on which country you're in. So if you look at the paper, they've done this for all the different countries that they looked at. And they found that in Western Europe and in North America, I'm in Britain, which is in Western Europe, the kind of satiation point for how much money no longer brings you more happiness, is about 100,000 to 105,000 US dollars.In Southeast Asia that number is about $70,000 and in Latin America and the Caribbean it's about $35,000.

Point number three

Does money buy happiness? Well, it depends on how many people you're looking after. Now, obviously if you're earning $50,000 as a single person, that is a very different thing than if you're earning $50,000 to support a family of four. And so usually when they do studies like this, and certainly in this Nature Paper that they've done, these numbers that I've quoted for the video so far are all based on being a household of a single person. So if you're a single person household, your satiety point in Western Europe is about a hundred thousand dollars. But the way they control for different people in a household is you take the number of people in the household and you square root it and you multiply it by that household income. And so if you're a household of four people, square of four is two, two times a hundred thousand is 200,000, and so your point beyond which money stops buying happiness, again, if you look at the sort of large population of data, your point will be about $200,000 compared to the $100,000 for someone who's just a single person household. But I think the interesting thing about all these studies isn't really the point at which you have this because these are all like, it's all based on so many averages and so much population level data. And we're not saying that, hey, if you're owning a hundred thousand dollars, if you were to double your salary it wouldn't make you happier. It's just that on average, people with a salary of $200,000 are no less happier than people with a salary of $100,000 because they've hit that point of satiation. And so the overall answer to our question of does money buy happiness is that, yes, money does buy happiness but only up to a certain point. And I think understanding some of the reasons why this might happen is really helpful because even if we're not at that satiation point of a hundred thousand dollars or whatever, we can still learn a lot of lessons about why more money doesn't bring more happiness beyond that point. Part three, beyond the point of society, why does more money not necessarily lead to more happiness? This I think is an interesting question and there's lots of different answers to it. But one of the answers, and a big part of the answer is something called hedonic adaptation. Hedonic adaptation is the famous idea that we all have a tendency as humans to quickly return to a similar level of contentment even after major positive or negative changes in our lives. There's actually been a few famous studies on people who won the lottery, like won loads of money in the lottery like tracking their happiness before and after, and they found that after a while, like they actually very quickly returned to more or less baseline levels of happiness. And we've all definitely had this experience anecdotally as well. Like for me, a few months ago in September of 2020, I bought a Tesla Model 3, and yeah, for the first few weeks it was like, "Oh my God, I'm driving a Tesla. "It's like really comfortable and super nice." But now when I drive it it's still nice but like it's now become the new normal. And so I don't get as much pleasure from it as I once did back in September when I first had the car. But do I regret buying the car? Absolutely not, I think it's great. And I knew very well that I was gonna hedonically adapt to it. And so given that I know that that is like a fundamental aspect of human psychology, it means that when I get into the car or when I just kind of live my life in general, I can make it a point to be more grateful for the things that I do have. And so when I'm getting into the car I can think, "You know what? "This is a pretty sweet car." So hedonic adaptation is one reason why money doesn't buy happiness beyond a certain point. But another part of the answer is the idea of comparison. The famous British economist and philosopher, John Stuart Mill, once said, "Men do not desire to be rich, "only to be richer than other men." This idea has been confirmed by lots of studies and it's called relative deprivation which essentially explains that our happiness usually depends on comparing ourselves with our friends and colleagues. And so because we all have this tendency to compare ourselves with our peers, like our actual happiness based on our income and how much money we have, isn't actually tied directly to the money itself. It's tied on how it makes us feel relative to our friends.

So if all of my friends were earning 20,000 and I'm earning 50,000, I'm gonna be feeling pretty happy about that because that's just how human psychology works, unfortunately. But if I was earning $200,000 and all my friends were earning $500,000, I would feel pretty bad about that. And studies have shown that I'm more like to think of my life as being less happy and less meaningful because of that comparison. And so bearing this in mind, this tendency that we all have to compare ourselves, and comparison is the thief of joy. And anytime we compare ourselves to anyone, we're just likely to either feel superior, which is bad. But also if we compare ourselves to people who have more than us, we're likely to feel inferior. And I think just keeping that in mind and just not letting ourselves make these comparisons is generally the way forward.

And so for me, I find that if I'm speaking to someone who's got like a $10 million business, I would feel tempted to feel a little bit jealous of that I'll be like, "Oh, you know, that must feel really cool." But then I have to consciously remind myself, "No, no, no, this whole comparison thing is bad. "There's no point doing any comparisons "because it's just not good." And actually for me, over the last few months I've interviewed a lot of people who have like huge businesses and who are very kind of monetarily successful. But I've also interviewed people who could have big businesses but are actively choosing to keep things a little bit more small and manageable. And this is something I talked about with my friend,

John O'Nolan, who is the CEO of Ghost, which is the company that I use to host my website, about why he's deliberately kept Ghost small and isn't really optimizing for growth at all costs.

- I evaluate people based on how happy they are more than how much they make. I think I know a lot of rich, unhappy people.

- Okay.

- I know a lot people who sold their companies and became very financially successful and they're very, very depressed. Because if the company was something they loved and they sold it and they got rid of it and now they have lots of money but they played the game, they bought the Lamborghini's, and sure enough, the thrill of that wore off a lot faster than they expected.

And now they're bored left with the existential question which has gone unaddressed which is, what do you do now?

And I've seen that pattern play out so many different times. So for me, I care more about the freedom I have. That's what I really optimize for. So I would say to you now, try not to compare yourself. Go for the goals that feel meaningful to you versus the goals you see other people going for. Because the worst thing you could possibly do in life is strive to achieve someone else's definition of success and only to arrive there and realize that it's not yours. So yeah, that would be my take.

- So those are a few things I'm constantly reminding myself to keep in mind when I'm thinking about, "Do I wanna try and make more money "or do I wanna optimize for happiness instead?" And actually it was this book, Your Money or Your Life by Vicki Robin that really helped me change my own relationship with money and stop focusing so much on making more of it and instead thinking about things like meaning and fulfillment instead. If you wanna see my summary of this where I talk about my thoughts and feelings about this book that changed my relationship with money, That'll be my book club episode. If you don't wanna read the book you don't have to,

Thanks for reading and I'll see you the next one.

Bye-bye