How Does Money Impact Wellbeing?
Money allows us to meet our basic needs—to buy food and shelter and pay for healthcare. Meeting these needs is essential, and if we don’t have enough money to do so, our wellbeing suffers.
Beyond that, as Tom Rath suggests in his book, Wellbeing, “money can increase our short-term happiness by giving us more control over how we spend our time.” For example, it can give us the option to live closer to work, work fewer hours, and spend more time on leisure activities with friends. Money can be used to make our lives easier.
But the fact is that most of us don’t use money to buy more free time. Instead, we spend it on more expensive possessions.
Sally's story
Sally’s story is somewhat typical. She worked downtown as a buyer for a major retailer, and when she got a promotion and a large raise, she and her husband Drew bought a large home in an outer suburb. Sally soon found that the additional commuting time, on top of the increased demands of her new position, left her little time to fit in exercise or see friends, so she cut back on those activities. When Drew also got a good promotion, they thought about moving closer into the city to reduce their stressful commutes, but decided instead to remodel their kitchen like the beautiful one they had seen elsewhere in the neighborhood. The mortgage they took to do the remodeling added $300 to their monthly expenses, taking up all of Drew’s raise, which also meant that they couldn’t afford to hire someone to come and clean their home twice a month.
Like Sally, many of us may not be using money in a way that maximizes our wellbeing.
More money doesn’t necessarily buy happiness
Contrary to what most of us believe, once we have enough to meet our basic needs, a higher income may not significantly increase our wellbeing and may even have a negative effect in some cases! The data to support this is interesting. For example,
- Per capita income in the U.S. rose 150% from 1946 to 1990 (which is a huge difference in purchasing power), but the percent of people considering themselves very happy fell.
- In addition, depression rates in the U.S. rose 10 times in that 50-year period.
- In Japan between 1958 and 1991, the per capita income rose six-fold, but subjective wellbeing stayed the same.
- People who won large amounts of money in lotteries in the U.S. or football pools in England were not significantly happier a year later and were more dissatisfied with daily events.
- Welfare recipients who were given more money in a controlled study experienced more stress than those who received the regular amount.
Other studies have associated higher incomes with higher levels of stress, increased likelihood of divorce, and less enjoyment of small activities. Ed Diener, a researcher who has spent over 30 years studying wellbeing, postulates that a higher income may mean more work, less leisure time, and fewer strong social connections. In other words, the benefits of having more money might be offset by the sacrifices people are making in other aspects of wellbeing—Sally is one example of this.
Furthermore, we are forever comparing ourselves to others who are doing better. If our income goes up but everyone else’s does too, we are not happier. A person who earns $30,000 a year will be dissatisfied if his friend makes $50,000 a year. You would think a raise to $50,000 would make him happy, right? Not if his friend gets a raise too—he will be equally unhappy making $50,000 if his friend is now earning $70,000! Many times our dissatisfaction with our financial situation comes from the perception that we’re not stacking up to the people around us.
Materialism makes people unhappy
We humans don’t always know what makes us happy! Because our society values it so, we believe that money will bring us happiness and so we don’t pay attention to what is actually going on. Consider these facts:
- The happiness of acquiring goods is always transitory—it wears off. For example, we might be really excited to buy a bigger car, but over time, we take the car for granted. Moreover, we are still committed to monthly car payments, which can restrict our options for fun activities--vacations and dinners out, for example.
- We adjust our expectations upward. As our income goes up, we feel we need more expensive things, and those higher aspirations use up almost all of our gained income. In other words, we use almost all of our raises to buy a more expensive version of things we already have.
- Our wants can be insatiable—the more we get, the more we want. This can lead to large debt and all the stress it brings.
- Greater materialism is associated with a host of negative effects: lower self-esteem, greater narcissism, less empathy, and more conflicted relationships.
The title of the 1976 book, The Joyless Economy, captures this perfectly. In reality, most of the important pleasures in life cannot be bought. What really bring us satisfaction in life are relationships, purpose, meaning, and connection to nature. We seek personal fulfillment and are disappointed when material things don’t provide it.
Moreover, money can actually detract from our ability to connect to others. University of Minnesota researcher Kathleen Vohs conducted a series of studies showing that when money was on people’s minds, they became less helpful, wanted to work on their own, and didn’t mind being socially excluded.
