By Emma Young
Poverty can have long-term psychological effects. But for people living above the poverty line, expectations about how much money we should have or need, as well as decisions about what to spend our money on and what to save for the future, can also affect psychological well-being. However, some long-standing ideas about this are being challenged as we explore here.
Is it true that money can’t buy happiness?
It is common knowledge that this is not possible – at least as long as your income already covers your basic necessities plus a few amenities, such as a car. But according to a recent paper in PNAS, that is not right. Matthew A. Killingsworth of the University of Pennsylvania analyzed data from more than 33,000 working adults in the United States who were asked to report on their own wellbeing at random via a smartphone app. Contrary to the findings of some very influential previous work, the analysis of over 1.7 million reports found no evidence of a “well-being plateau” above an income level of $ 75,000 per year. Instead, Killingsworth found that well-being increased with income, with incomes in this study ranging from $ 15,000 per year to over $ 480,000. “This suggests that higher incomes still have the potential to improve people’s everyday well-being,” he writes himself in affluent countries.
However, it’s worth noting that the data shows that well-being increases by a similar amount every time income decreases doubled For example, an increase from $ 30,000 to $ 60,000 is associated with a much greater increase in happiness than an increase from $ 120,000 to $ 150,000.
What Should You Buy To Maximize Happiness?
No more Things, according to most research – but there is one caveat that we will get to shortly.
Certainly there is ample evidence that buying experiences, not possessions, leads to greater wellbeing. For example, in 2020 a team that included Killingsworth, but was led by Amit Kumar of the University of Texas, Austin, reported a study of 2,635 adults in the United States who received regular daytime messages asking them for their latest Emotions and purchases asked. The researchers found that people were happier when they spent on experiences like attending a sporting event or dining at a restaurant than when buying goods that were the same price as jewelry or clothing.
Another study published in Social Psychology and Personality Science, reported that although most people say they would choose more money, participants who chose money were happier (participants’ household income and free time were factored in in this analysis). The team also found that happier people are more likely to choose more time than more money. But their analysis suggests that the effect works both ways, with prioritizing time and money and greater happiness reinforcing each other. (The participants in this study were thousands of Americans representing a range of ages, income levels, and occupations.)
But there is also evidence that buying experiences and time really only makes you happier than buying objects if You are already reasonably wealthy compared to those around you. As we reported in 2018, research (again in the US) has shown that less affluent people have the same – if not more – luck buying properties.
How Does Income Differences Affect Happiness?
People living in areas with more similar incomes tend to report higher levels of wellbeing – and this applies not only to high-income regions like the Scandinavian countries, but also to regions where no money is used at all.
There is a lot of research that shows that it is not so much how much we earn (above a basic level) that matters, but how much we earn compared to those around us this has an impact on wellbeing. In a recent study, two researchers analyzed decades of data from the United States and also from several Western European countries, including the UK. They found that, particularly in Europe, there is increasing income inequality with higher Degrees of happiness – up to a critical point. Beyond this point, happiness diminished.
The researchers find that limited inequality is encouraging – people see that some social mobility is possible and expect that they could achieve it themselves. However, when income inequality becomes too great, “more aspiring people can replace their dream of advancement with despair and envy the rich”.
“Too high” was significantly higher for the USA than for Europe. The researchers believe that this could be because, while Americans have lower social mobility and also greater income inequality compared to Western Europe, Americans believe more in the possibility of social mobility.
One final note on income inequality: it can of course be important to highlight it. Surely there is research that shows that visible memories of inequality can make disadvantaged people more likely to do something about it.
How about giving away money….
Throughout human history and across cultures, people have helped each other in times of need – at least that is the message of the influential Human Generosity Project. Anthropological studies of a wide variety of communities suggest that we are generous by nature. While this research has focused on generosity within communities, we are of course also motivated to donate anonymously to charity. Studies in this area have found that giving increases happiness and happier people give more, creating a virtuous spiral of increasing benefits.
Other studies have examined the factors that influence our decisions about donating to charities. A paper from 2019 in Nature communication, who analyzed millions in donations through the GoFundMe platform, found that donors donated significantly more to people who shared their last name. In addition, men and women donated more when donors of the opposite sex were shown on the screen.
That same year, we reported on a study that found that simple “moral nudges” encourage people to donate much more to charity. Getting people to think about what was morally “right” increased actual donations by nearly half.
…. And hold on?
You really want to save on a down payment for an apartment or for your retirement – but that ridiculously expensive dress or shirt or vacation is just about so delightful. Most of us have experienced such feelings. It is much more difficult to invest money in the future than it is to spend it now. In theory, it should help find ways to close the gap we feel between our present and future selves. And a questionnaire that made participants in Portugal think more about their own future aging made them invest more in pension funds, a 2018 study reported in the Journal of Applied Social Psychology.
Other groups have explored various practical ways to encourage people to save. In 2020, a team led by Hal Hershfield at UCLA reported on a study of thousands of new users of a financial technology app. They found that proposing smaller, more regular deposits versus larger, less regular deposits encouraged less wealthy people to save. In this US study, three times as many people in the highest as compared to the lowest income bracket signed up for a monthly deposit of USD 150. When this was instead framed at $ 5 a day, the difference in attendance was eliminated (although the overall savings were of course the same for each individual).
There is also evidence that some personality traits put you at greater risk of financial hardship and even bankruptcy. Perhaps surprisingly, one of these properties is tolerability. The reason, according to the team behind this 2018 report, is that pleasant people value money less and are more likely to mishandle their own. “The relationship has been much stronger for low-income individuals who don’t have the financial means to offset the negative effects of their pleasant personalities,” commented UCL co-author Joe Gladstone.
This article also appears in the summer edition of The psychologist magazine.
Emma Young (@EmmaELJunge) works at BPS Biomedarticles