Money can buy happiness, right?!

Can money really buy happiness? It’s certainly an age-old question. At the very least, money provides us with a bed, bath and bread and gives us the freedom to make certain choices. However, we do tend to overestimate its influence on our wellbeing, according to happiness professor Martijn Burger, who has been researching the subject for years.

Fortune cookie with the inscription "Happiness doesn’t have to come at the expense of profit, on the contrary"
image: iStock, edited

Before we even start talking about money ... what is happiness anyway? In my field, we define happiness in terms of life satisfaction or perceived quality of life, explains Professor by Special Appointment of the Economics of Happiness Martijn Burger. The Economics of Happiness isn’t about pleasant moments: a nice night out or a good glass of wine. We study long-term happiness, preferably across the whole spectrum of human life. That said, we also examine key aspects of life individually: work, relationships, the place you live. How do they contribute to our long-term happiness?

So: To what extent does money affect our sense of happiness?
We need to start by asking: ‘Are richer people generally happier than poorer people?’ The answer is yes. Income is a crucial prerequisite for meeting our basic needs. If you can’t manage to earn a decent income and are experiencing financial worries, that will inevitably have a negative impact on your sense of happiness. On the other hand, as economist Richard Easterlin discovered way back around 1970, people don’t keep getting happier as they become richer. Burger quotes some Dutch statistics that support this: The richest 20 percent of the Dutch population rated their happiness at 7.8, while the poorest 20 percent ranked theirs at around 7. That’s certainly not a major difference. We also tend to get used to having more money. We examined what happens when people suddenly have a lot more to spend. As it turns out, our sense of happiness initially improves at both individual and national levels. But after a while — say a few years — it completely wears off. We refer to that process as the adaptation effect. The more you have, the more you spend. You just get used to it in the end.

Are richer people generally happier than poorer people?

Martijn Burger

‘That’s not fair!’
There’s also another key factor in the relationship between money and happiness: social comparison. It’s not just about the amount of money you have, it’s also about how much other people have. If you’re surrounded by rich people and make a lot less money yourself, that won’t make you any happier. We always compare ourselves to people ‘like us’, but oddly enough we always compare upwards, never downwards. As Burger explains, our sense of happiness is also influenced by another factor: fairness. Is the amount I’m making fair in comparison to others (within the organisation)? If the answer is ‘no’, that will have a negative impact on our sense of happiness.

Richer, but not happier
While Western countries have only become richer in recent decades, studies suggest we haven’t become any happier as a result. Again, that’s due to adaptation and social comparison, Burger explains. The distribution of wealth has also become more unequal. The ‘elite’ has reaped most of the benefits while the median income of working and middle class households has remained stagnant. A comparison between countries shows that developing countries are on the losing end. Our social capital has also deteriorated. We have fewer social contacts and are less likely to trust institutions. Other aspects of what we refer to as broad prosperity have also been neglected, with a negative impact on happiness.

Taking a broader view
So how can Happiness Economics contribute to a solution? We don’t always recognise what makes us truly happy. I want to help people, organisations and governments make informed individual decisions. Money affects our sense of happiness, but we overestimate its importance and tend to underestimate the importance of things like social contacts, feeling appreciated, work-life balance and health. If you invest in those things on a structural basis and focus on each individual’s needs, you’ll actually increase your profits. Happy individuals, employees and citizens are more productive and creative and tend to rate their boss or country more highly.

Prof. Martijn Burger (40) took a broad Bachelor’s in Social Sciences at University College Utrecht and a research Master’s in Sociology and Social Research at Utrecht University. He obtained his PhD in Spatial Economics with honours from Erasmus University Rotterdam in 2011. He went on to join the Erasmus Happiness Economics Research Organisation, where he has served as director since 2014. He also serves as associate professor of the Economics of Happiness at the Open University. He grades his own sense of happiness an 8+.