Happiness Misconception 1: Money, money, money, always sunny
Updated: Jul 10, 2020
Daniel Gilbert, in his 2006 book entitled Stumbling on Happiness, notes that we anchor our expectations and goals on relative, not absolute values. The “keeping up with the Jones’” mentality is rooted in our psychology. Unfortunately, this leads us to chase goals like dogs chase lasers. We’re always chasing, but never satisfied, and that laser continues to elude us no matter how much we scratch, bite or fight to get a grip on it.
The topic of money and happiness is well studied, and numerous, complex relationships between money and happiness exist. In this chapter we’ll address one misconception around happiness and wealth, namely, that we’ll be happy when we reach xyz dollars, pounds or other relevant currency.
Sonja Lyubomirsky (2008) is one of the world’s leading happiness researches. In her book “The How of Happiness”, she examined how we determine what salary they think they need to be happy. The author asked people who earned $30,000 per year what salary they needed to live comfortably and happily. Respondents who earned $30,000 thought that what they needed $50,000 to feel comfortable. When they asked respondents, who earned $100,000 per year, they felt like they needed more to feel happy. These high earners were stingier than the $30,000 sample, and their target income was a whopping $250,000, 2.5 times their current incomes. The study illustrates that there is no universal metric of a “perfect salary” or “ideal salary”. Instead, people often arbitrarily base their salary expectations on their current income, or other anchor. These salary anchors need not be relevant.
Your brain takes in information from Keeping up with the Kardashians, Gossip Girl and Billions, setting salary and spending expectations without your say-so. If you live in a beautiful neighbourhood where you measly 4-bedroom-villa is dwarfed by 10-bedroom-palaces, you’ll likely feel inadequate and unhappy with your lot. We will get into how we can combat this annoying mind feature in the coming chapters, but for now it is enough to know that there is no objective watermark for money that will fill you with a feeling of complete contentedness. Your watermark will constantly rise as the tide of your financial wealth does, better to build a boat that floats happily on low and high tides alike.
Gilbert (2006) notes that there are diminishing returns on money. A common phrase holds that “you can’t buy happiness, but it’s lack buys misery”. A very low-income earner, struggling to put food on the table, keep up with bills and working long hours to make ends meet will benefit greatly from more money. On the other hand, a billionaire who earn an extra $1 million per years is not likely to become much happier. Exhibit three below illustrates this relationship. Suffice here to say that happiness and money do not have a straight linear relationship, which is more attuned to general expectation (whether conscious of unconscious). In the following chapters, we will delve more deeply into how to utilise money for the purpose of happiness.
The General Social Survey show that, since 1972, people in the United States of America (USA) have not become much happier. Exhibit 4 shows that the trend in the happiness of survey respondents is on a downward slope. In the latest survey, 14.3% of respondents indicated that they were “not too happy”, one of the highest percentages recorded in the survey. This despite an average real GDP per capita of $57,336 (2012-dollar equivalent), the highest real GDP per capita ever recorded for the USA. If consuming more (possible with a higher average GDP per capita) contributed significantly to happiness (even if not proportionally), we would expect rising, not falling happiness levels with better economic output. Exhibit 5 illustrates growth in real GDP per capita in the USA since 1972 and shows that people were – on average – more than twice as rich in 2018 than in 1972. What is going here? Well, it turns out that the poverty rate (see exhibit 6), much like the happiness rate, is relatively flat since 1972. In fact, poverty is on a slight upward trend, while happiness in on a slight downward trend. As one might expect, poverty rates and happiness rates appear to inversely related.
Now, I am not proving any causal relationship, but I think the argument is compelling. If happiness and money really do have a diminishing relationship, this correlation is expected. Poverty causes unhappiness while riches do not promise prosperity. I hope by now you are convinced of it; the data doesn’t allow for any many other conclusions. These findings are supported by the World Happiness Report, a survey that collects happiness data across 156 countries. The 2018 report found that measures of overall life satisfaction fell 6% in the United States between 2007 and 2018.
Thinking that reaching a money milestone will make you happy, then, is a bit like using a cheesy pick up line at the bar. Loads of people will tell you that it works, but you know deep down that they have some weird ulterior motives. Maybe you’ve even tried it once, well, you know it did not work as advertised. This popular myth doesn’t end with money though. I mean, maybe money can’t buy happiness, but it can buy an Aston Martin and that’s pretty much the same thing, right? I wish, this book would be a lot shorter and easier to write if that were true! According to (Dutt, 2006) “the bulk of the evidence seems to contradict the consumption-happiness relationship.” One study (Okulicz-Kozaryn, et al., 2015) finds that, in the USA, luxury car owners are no happier than frugal ones. The authors use statistical analysis and find that, even after controlling for other relevant variables, luxury cars (despite having little technical differences to their frugal counterparts in many cases) do not make their purchases happier. Simultaneously, luxury purchases represent an anchoring bias that make others feel relatively deprived, leading to a consumption arms race (Frank, 2012).
More surprisingly is that great jobs don’t make people happy either. Perhaps you were thinking that the great job, which (besides from a good salary) will give you the pleasure of reaching the pinnacle of a career, earn you the respect of your community and transform your life into a perpetual bliss? Well, apparently even a good job isn’t enough for us. We are really rather needy, aren’t we? Gilbert et al. (1998) conducted a study to assess the impact of receiving tenure for professors in the United States. Receiving tenure for university professors in the United States is considered the golden ticket in many respects and the goal of many academics. The position provides security and prestige. In the study, Gilbert at al. (1998) found that receiving this coveted job had a small positive effect on happiness, far lower than the expected effect.
“Alright, alright” I can hear you thinking, “maybe money and things won’t make me happy, but I am sure that true love will.” I can here some others thinking “Pssht, yeah right. This guy’s crazy. All I need is a six pack, a couple of killer biceps and I’ll be set for life”. Still others are procrastinating for exams and thinking “I swear, if I get an A on my exam, I’m going to explode with happiness. They’ll be able to can my brain and finally agree on the definition of the term.” Unfortunately, as it turns out, even true love, a perfect body and amazing academic acumen won’t complete you (think Tom Cruise in Jerry Maguire).