Does money make you happy?

Research offers some surprising answers. A closer look at the measurement error of materialism.

By Arthur C. Brooks

from the June 24, 2008 edition

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Syracuse, N.Y. - You've heard it a thousand times: Money doesn't buy happiness. Yet in spite of this axiom, people throughout history have tried mightily to accumulate riches. Are we suffering from some sort of collective delusion, or is it possible that money truly does buy happiness?

The evidence offers some surprising lessons:

•Rich nations aren't necessarily happier than poor ones.

•People at all income levels say they need about 40 percent more than they make.

•Feeling successful – not being rich – is most closely related to happiness.

•Capitalism is a vital ingredient in America's gross national happiness.

Let's take the global view first. Compare Mexico and France. In Mexico, most people live above the level of subsistence, but the average purchasing power is only about a third what it is in France. And yet Mexicans, in aggregate, are happier than the French. In Mexico in 2002, 63 percent of adults said they were very happy or completely happy. In France, only 35 percent gave one of these responses.

The more we get, the more we need

Like nations, once individuals reach subsistence, they get little or no extra happiness as they get richer – even massively richer.

In a 1978 study, two psychologists interviewed 22 major lottery winners and found that the joy of sudden wealth wore off in a few months. They had a harder time than others enjoying life's prosaic pleasures: watching television, shopping, talking with friends, and so forth.

The reason for this phenomenon is that humans tend to adapt psychologically to their circumstances – including their monetary ones – quickly. Economists call this the "hedonic treadmill."

One study shows that people report needing 40 percent more to reach a level they consider sufficient. If you earn $50,000 per year, you'll "need" $70,000. But if you get a raise and make $70,000, you'll soon "need" about $98,000. The more you have, the more you find you need.

Some research appears to suggest that how much money we make is largely irrelevant to our happiness; it's how much more we make than others that matters.

In one study involving faculty, staff, and students at Harvard, participants were asked to choose between earning $50,000 per year while everyone else made $25,000, or earning $100,000 per year while others made $200,000.

It was stipulated that prices would be the same in both cases, so a higher salary really meant being able to own a nicer home or buy a nicer car. But that didn't matter much: 56 percent chose the first option, hypothetically forgoing $50,000 per year simply to feel richer.

Do we really care more about one-upmanship than material comforts? Hardly. What the data tell us is that richer people are happier than poorer people because they feel successful in their lives. And it is success – not money – that we really crave.

Success matters more than money

Imagine two people who are the same in income, education, age, sex, race, religion, politics, and family status. One feels very successful; the other does not. The former is about twice as likely to be very happy about his or her life than the latter. And if they are the same in perceived success but one earns more than the other, there will be no happiness difference at all between the two.

The upshot: If you and I feel equally successful but you make four times as much as I do, we will be equally happy about our lives. Of course, successful people make more money than unsuccessful people, on average. But it is the success – not the money per se – that is giving them the happiness.

Financial status is one way we often measure our success. There is nothing strange about this; we measure things indirectly all the time. I require my students to take exams not because I believe their scores have any inherent value, but because I know these scores correlate extremely well with how much they have studied and how well they understand the material.

What scholars often portray as an ignoble tendency – acquiring more than others – is really evidence that we are driven to create value. This is a virtue, not a vice. The fact that it also brings us happiness is a tremendous blessing.

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