Can Money Buy Us Happiness?

I maintain that most of us are pretty awful at knowing how to make ourselves happy. Despite all our modern luxuries, are we really any happier than people were a few hundred or thousand years ago?

One problem is in how we define ‘happiness.’ Daniel Kahneman noted in Thinking Fast and Slow that being happy now and being happy with our lives overall are two different constructs that can have very different answers.

Thinking Fast and Slow… people’s evaluations of their lives and their actual experience may be related, but they are also very different. Life satisfaction is not a flawed measure of their experienced well-being, as I thought some years ago. It is something else entirely. —Daniel Kahneman

Looking back on our lives, we tend to rate the peak emotional experience along with the end of the event as the defining features. However, being happy now is about what we’re currently occupied with and whether we enjoy it.

Things that might not be fun at the time—such as studying for a test or running a marathon—are judged as being positive events once all is said and done.

Mihaly Csikszentmihalyi found something similar when he studied the psychological state of Flow, and noted in his book by the same name:

Flow… experiences [might not be] particularly pleasurable at the time they are taking place, but afterward we think back on them and say, “That really was fun” and wish they would happen again. —Mihaly Csikszentmihalyi

That being said, what role does money play in this?

Previous studies have found that happiness plummets if we’re extremely poor, but also that happiness steadily increases along with our incomes up to a point at which the effect drops off—this tipping point is around $75,000 per year for people in the United States.

Building upon this study, new research from the University of Cambridge chose a new way to challenge the notion that money can’t buy happiness.

Over 6 months the researchers analyzed 76,863 transactions by 625 individuals in the UK. The participants had taken personality tests (the Big 5) which were then compared to their transactions.

The researchers wanted to see how the purchases and activities matched up with the personality styles. They found that the people that spent more money on things related to their personality style were the happiest.

Our study breaks new ground by mining actual bank-transaction data and demonstrating that spending can increase our happiness when it is spent on goods and services that fit our personalities and so meet our psychological needs. —Joe Gladstone

For example, someone high in extraversion would be happiest spending their money on things such as travel and going to bars; someone high in Conscientiousness would prefer health and fitness; and those higher on the neuroticism scale enjoy gambling.

Money and happiness

Spending money on things we enjoy makes us happy. Not such a big surprise. However it does help to show that each of us is unique and the things that will make us happy also differ.

While someone might say “money can’t buy you happiness,” this research tends to imply that it can, provided it is spent in the right way.

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