Money & Happiness: How Are They Linked

 

Erin

 

“Can money buy happiness?”

 

This is the age old question we always seem to come back to when questioning whether or not we should devote the time to earn more money, or when we’re broke college students wondering if life would be easier if we just had more money.

 

This question is so important, psychologists have tried to figure out the answer through several well-known studies.

 

Yet, the answer can still elude us, and truthfully, I think the answer might be different for everyone, depending on what their values are.

 

But it’s an interesting topic to think about, so let’s try and connect all the ways money and happiness can be linked.

 

What Money Can Buy

 

First of all, I think we should kick this off by stating what money can buy us, because we can’t exactly go to a bar or to Amazon and order a dose of “happiness” in pure form. (Life would be pretty magical if we could, though.)

 

Money can buy us: Healthcare (at least, in the US), Good food, Shelter, Clothing, Experiences and Freedom.

 

Yes, it can buy us a bunch of other things like cars, cable, electronics, and all-important subscriptions like Netflix and Prime, but notice the theme here: these aren’t necessities. They’re extras.

 

Sure, “experiences” aren’t necessary, either, but I’d argue they’re more likely to bring you true happiness than binge-watching whatever show is popular right now. (Okay, maybe.)

 

The point is, money can buy us happiness in round-about ways.

 

We need healthcare to, well, stay healthy and consequently, happy and pain-free.

 

We need food (the healthier, the better) to give us fuel and help us live longer. And let’s face it, no one likes to be hangry.

 

We need shelter to stay safe from the elements and have a good night’s sleep.

 

We need clothing to look presentable, to keep us warm or dry, and to possibly get and keep a job (which helps you to pay for all this stuff).

 

And lastly, experiences and freedom are the ultimate things money can buy us. What good is having money if you can’t enjoy it?

 

How Much Money Is Necessary for Happiness?

 

Okay, so money buys us quite a few things that, in some way or another, lead to happiness.

 

That begs the question, how much money do we need to reach a good level of happiness?

 

After all, you might have some money, but maybe the amount you make doesn’t allow you to afford all of the above. Maybe you can only afford basic shelter, food, and clothing, and you’re uncomfortable more often than not.

 

Plus, most of us probably automatically associate “the rich” with being happy because they face no barriers – they can buy anything they want! Must be nice, we say. But that can lead to excess.

 

We can’t just say “money buys happiness;” we need to define how much money we’re talking about.

 

A few years ago, a study came out saying that the “limit” was $75,000. Apparently, if you made over that amount, your happiness plateaued.

 

However, I think we can all agree that $75,000 in New York City isn’t the same as $75,000 out in the middle-of-nowhere Kansas. (Sorry, Kansas.)

 

So Business Insider came out with a chart and adjusted for the cost-of-living by state, so you can see what the benchmark is where you live.

 

That being said, I’m a big fan of simply knowing your own numbers. It can be helpful to have a benchmark to aim for, but not everyone’s finances are going to look the same.

 

I’m fairly happy when I 1) have my emergency fund in place, 2) am earning more than I spend, and 3) am still making good progress on my student loan debt.

 

You may or may not need $75,000 to be happy. You may need more, you may need less.

 

So let’s turn our focus to how we’re actually spending our money!

 

Material Items VS. Experiences

 

This is the big debate whenever an article asks, “Can money buy happiness?”

 

There has been a decent amount of research done proving that spending on experiences leaves people happier than spending on material stuff.

 

There are a number of reasons why, but a few are common sense when you think about them.

 

For one, whenever we buy material things, our happiness fades quickly. It can be a new car, new electronic, new clothing – whatever. We’re really happy about it for a week or two, and then it becomes the dreaded “normal.” It’s no longer a new, shiny object to play around with or adore. It starts to blend in with the rest of our stuff, and maybe it collects dust.

 

We don’t go through those phases with experiences. Most of the time, we have a lot of anticipation leading up to an experience (perhaps like we would if we were waiting to buy an item), then we experience whatever it is that we paid for, and then we’re left to treasure the memories we made during that time.

 

There’s no blending in or collecting dust, at least not permanently. You might not continue to think about the experience you just enjoyed on a daily basis five years from now, but you can probably recall a few highlights with fondness when prompted.

 

In my opinion, experiences can also change you. Traveling to another country is most likely going to have a bigger impact on you than ordering and possessing the latest phone.

 

An Unexpected Link: Spending on Others

 

Here’s an interesting way money and happiness are linked: studies have shown that people are happier when they spend their money on other people.

 

That’s an interesting link because when people normally talk about money and happiness, they take a selfish angle.

 

We normally think in terms of what money can do for us – how we could achieve our financial goals faster. Not how we can use it on other people.

 

But these studies have shown that it might be wise to save a little money so we can gift others with experiences instead of ourselves.

 

That’s exactly what Michael Norton, a social science researcher, proposed in his TED Talk. It’s only 10 minutes long, but I’ll summarize it here.

 

To figure out if spending money on yourself versus spending it on others made a difference in levels of happiness, a team of researchers gave money to college undergraduates in Canada.

 

Those who were instructed to spend money on themselves received $5, while those who were instructed to spend money on others received $20.

 

At the end of the day, after confirming that the students spent the money as instructed, they gauged their happiness levels. Those who spent money on themselves showed no difference, while those who spent money on others were happier.

 

To see if this held up elsewhere, they did the same experiment in Uganda. The results were the same: it didn’t matter how the money was spent on someone else, it only mattered that people weren’t spending the money on themselves.

 

They then gathered data from a Gallup poll which asked respondents from 136 countries if they had donated to charity recently, and how happy they were with their life.

 

There was an overwhelming positive correlation between the two, so you can make the argument that making charitable donations increases your happiness.

 

What If We Take Money Out of the Equation?

 

Another interesting part of that TED Talk, in my opinion, was the fact that those who won the lottery didn’t experience an increase in happiness. In fact, their lives were damaged instead.

 

Why? Well, a lack of money isn’t always the problem. If you give people with spending problems a ton of money, they’re going to use it unwisely, likely because they have bad spending habits.

 

They’re not going to magically shift to the mindset of a saver and want to hoard all of the money they just came into.

 

So what if we take money out of the equation instead? What if we just focus on happiness?

 

Take a moment to think about what happiness means to you. What makes you happy on a daily basis? What do you look forward to the most? Does it cost money? How could you incorporate more happiness into your life?

 

I know it sounds cheesey, but as I always say, focusing on your values and not focusing so much on the numbers can put things into perspective.

 

It’s easy to say we would buy this this and that if we won the lottery, but that happiness would likely be fleeting. Just as we shouldn’t depend on people for our happiness, we also shouldn’t depend on things (or the act of spending) to make us happy.

 

Further, happiness is a choice – a conscious choice we can make every day, no matter what our situation is. So it’s ultimately up to you to find happiness in your life, with or without money.

 

Science and research is inconclusive on whether or not money can buy happiness. And you know what? That’s okay, because the answer is a personal one. That might sound like a cop out, but the truth is, happiness is about a lot more than just money.

 

Practicing gratitude and a mindset of abundance can help you become happier, and combining that with good money management skills can improve your financial situation and how you feel about it.