Can money really buy you happiness? Here’s what the science says

Category: News & United Kingdom

There’s little doubt that if you have the means, you can purchase virtually anything.

Extravagant spending is nothing new, nor are ostentatious displays of wealth – often designed to satisfy the need to be seen as successful.

There are some things, however, that money can’t buy. For example, time, health, confidence, and trust are all cited as things even the biggest fortune can’t provide you with. Then, in their 1964 hit, the Beatles bemoaned the fact that their wealth couldn’t buy them love.

But can money buy you happiness? Find out more.

Research suggests that happiness rises with income but then plateaus

A landmark 2010 paper written by Nobel prize-winning psychologist, Daniel Kahneman, and economist, Angus Deaton, found happiness and income were only linked up to an annual salary of USD $75,000 (£54,000 or AUD $112,000)

Up to this point, life satisfaction increased in line with income, but plateaued once earnings exceeded that figure.

Clearly those figures will have to be adjusted to account for inflation since that paper was published, but the underlying message was that money can only provide you with a certain amount of happiness.

A subsequent report from the University of Pennsylvania and the Wharton School that looked to challenge Kahneman and Deaton’s findings found, again, that “… happiness rises relatively steeply with income and then plateaus.”

This suggests that while you may get some satisfaction from accumulating wealth, there is a level above which happiness can tail off.

Wealth doesn’t always mean money

One dictionary definition of wealth is of it being “a plentiful supply of a particular desirable thing”.

Obviously, money is desirable but beyond that there are other, non-tangible assets that can help define your wealth.

For example, a survey published in 2022 by Royal London revealed that nearly three-quarters of those aged over 55 favoured experiences over material possessions.

Clearly, money is important when it comes to measuring wealth. For one thing, it’s easily quantifiable and so easy for you to understand.

It’s also important from a financial planning perspective in terms of accumulating financial assets – savings, investments, pensions, and so on – and using them to fund your financial future.

But it may well be the case that, while money can buy you the means to be happy, true happiness is far more a state of mind than simply material possessions.

Money can provide you with security

There’s no doubt that money can buy you a certain amount of peace of mind.

Knowing that you have a safety net to fall back on, for example, can deliver a huge boost to how confident you are about the future, and allow you to enjoy the present.

Often, it’s the process of financial planning that helps you understand what your goals and concerns are, and then creates a long-term financial plan that addresses them.

Planning can help you establish your priorities and work towards them, whether that’s spending more time with your family, exploring the world, or taking an early retirement.

Often it’s about appreciating what you’re used to

Rather than solely looking at the value of your assets, looking at how they can add value to your life can help you get the most out of them.

An extravagant lifestyle might not necessarily mean greater happiness. For example, if you’re happy living a simple life with minimal outgoings, you could define yourself as being wealthier than someone whose lifestyle involves constantly spending money to meet their expensive tastes.

This might be even more so if the amount they are spending means that they struggle to match income and expenditure each month.

After all, if you have large amounts of debt you’re having to service, are you genuinely in a better financial position than someone who may earn less than you but has more disposable income through being debt-free?

Someone having expensive holidays abroad, eating out regularly, and upgrading their car every couple of years may actually be less wealthy than the person happy to holiday in the UK and who sees eating out as an occasional treat.

If you’re both earning the same amount and have the same measurable assets, then the person with the simpler lifestyle is arguably wealthier.

Acquisition can be more important than excessive wealth

A key consideration is that increases in income, and asset acquisition, may well matter more when you’re earning less.

Buying your first house probably meant far more to you than your third or fourth. Likewise, it’s highly likely that you recall, and still cherish, the moment you bought your first car, or went on your first expensive overseas holiday, more than your recent purchases or experiences.

So as you read earlier, if you earn above a certain level, it could become more difficult to properly appreciate assets as much as you did when you had less.

Happiness can come from having control over your financial future

While wealth is often seen as being in the position of not having to worry about money, often it’s more a case of having a better handle on your personal financial management, and having a robust plan in place to manage your financial future.

So, if you’re living the simple lifestyle referenced above, then you’re less likely to have to worry about having the money to live how you want.

On the other hand, if you need a substantial amount of money to support your way of life, external events, such as sudden investment market fluctuation, could easily have a disproportionate effect on the value of your wealth.

This demonstrates the importance of planning ahead, because the best way to ensure you enjoy the lifestyle you want in the future is to start taking the necessary steps to secure it now.

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Please note

This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances