Money Doesn't Make People Happy
Tim Harford 02.14.06, 12:00 PM ET
"The hippies," claimed economist Andrew Oswald recently, “is having their quiet
revenge." Oswald, a professor at Warwick University in England, is one of a growing
number of economists fascinated by the question of what makes us happy. In a recent
public lecture he announced, "Once a country has filled its larders, there is no point in
that nation becoming richer."
That, at least, should bring a smile to a few faces. Economists have suddenly realized that
money can't buy you happiness? This is like the squarest kid at school suddenly
discovering beer, girls and music in his 30s. The rest of the world had worked it out
One of the things that excites economists like Oswald is the ability to compare data on
wealth, education and marital status with the results of happiness surveys. In these
surveys, people are asked such questions as "Taking all things together, would you say
you are very happy, quite happy, not very happy, not at all happy?" Economists have
been trying to make sense of the results across individuals, across countries and across
the years. The headline: Once a country gets fairly rich (though much poorer than the
United States), further economic growth does not seem to make its citizens any happier.
So, money does not buy happiness. Or does it? "In every society, at any point in time,
richer people are happier," points out Will Wilkinson, a policy analyst at the Cato
Institute in Washington D.C., who runs a blog on happiness research and public policy.
"But that in itself doesn't tell you much about the relationship between money and
Richer people, after all, tend to have high-status jobs. They tend to have more control
over their lives at work--why pay someone six figures if you're not going to ask her to use
her own judgment? They also have higher expectations and will be comparing themselves
to wealthier people. It's hard to say what is really driving the results: money, status or
Perhaps each society's richer people are also happier because happiness comes not from
absolute wealth but from relative wealth--recall H.L. Mencken's quip that "a wealthy man
is one who earns $100 a year more than his wife's sister's husband." A more skeptical
view is that while it means something to compare my happiness with that of the guy
asking me for change on the street, it means nothing to compare my feelings today to
those of my grandfather in 1950--or those of a Portuguese shopkeeper or a Japanese
Wilkinson and economists like Oswald and his compatriot Lord Layard are thinking
about the policy implications of happiness research. My own interest is a little different:
Can the new breed of happiness economists offer us any tips for happier living?
Much of the advice is pretty slippery. For instance, married people are much happier than
single people. So perhaps you should get married? (Even better if your fiancée's sister's
husband is unemployed.) Not so fast. More sophisticated surveys show that the causation
runs both ways: Happy people tend to find spouses, while those suffering from
depression don't find it so easy. And--not surprisingly--some people do brilliantly out of
marriage, and others are utterly miserable. As an economist, I'm afraid I have no idea
whether you should propose to that cute girl you've been seeing. (You may or may not
take comfort in Oswald's finding that you can always get out of marriage: People are
happier immediately after a divorce than immediately before.)
Oswald also suggests self-employment, if you can pull it off without losing out
financially. "Everything associated with self-employment--independence, autonomy--is
also associated with being happy."
Both Oswald and Richard Layard argue that relationships are more important than
money--and that includes professional relationships. "I've come to believe in the old-
fashioned view that one should be tender in one's dealings with colleagues," Lord Layard
told me in an interview. And what else? "Think about what you have rather than what
you don't have, both materially and in your relationships and your personal strengths. To
use the language of economics, don't try to rectify things that aren't your comparative
This is spiritual thinking from an economist, but Oswald goes one better. If you're
depressed, why not just wait? "There's a kind of J-curve describing happiness over time.
Your late 30s are the most unhappy period of your life, but then the older you get the
happier you are. Life really does begin again at 40."
I think the most useful research, though, is by an honorary economist: Danny Kahneman,
the only psychologist ever to win the Nobel Prize in economics. He asked nearly 1,000
working women in Texas to reflect on their previous day, list the different episodes in it,
what they were doing and how they were feeling.
Some results are predictable enough: Work is miserable, and commuting is worse. Others
are not so obvious. For instance, praying is fun, but looking after the kids is not.
Spending time with your friends is one of the most enjoyable things you can do, but
spending time with your spouse is merely OK. In fact, parents or other relatives turn out
to make more enjoyable company than the supposed love of your life.
What is perfectly clear, though, is that socializing with anyone except your boss makes
you feel good. Sex is best of all. This is handy advice at last. But what if you are having
sex with your boss? Whereof economists cannot speak, we must remain silent.
Tim Harford, a Financial Times columnist, is the author of The Undercover Economist.
The story of the rich man
Once upon a time, there was a rich man who decided to give away his wealth.
(fantasy…).When his friends, very wealthy people - rich people know only rich people-
knew about his crazy decision, they flocked to his home asking for a piece of the pie. The
richest man on earth, more than a 100 billion dollar worth, was the first one there. He was
given what he asked for, a few billions…Then came the second richest man for another
few billions, then the third and so on…After a handful of our rich idols were done, the
rich, I mean poor man's wealth was reduced to a mere 97 cents. Very annoyed, he then
decided to give up his remaining wealth to as many people as possible. So he drove by to
the poorest neighborhood in town, giving a whole cent to the first 97 homeless people he
As a matter of fact, the rich man's wealth was almost totally "sucked" by other rich
And there was another rich man, more prudent, and …fond of quantum theory. Just like
his generous fellow, he chose to give up his wealth. However, he added a rule as to the
distribution of his wealth: any recipient would only be allowed to receive whole multiples
of his or her personal wealth. Whoever owns 100, can only receive 100, 200, 300 or any
multiple of 100.Under no circumstances can he get a fraction of 100.
So when the richest man on earth, still thirsty of more wealth, knocked at the wise man's
door and asked for a few billions, his demand was rejected as he couldn't comply with the
new quantum rule: according to this rule, the richest man on earth can only receive a
multiple of his 100 billion dollar wealth. Since the generous man doesn't have that much
funds, the richest man on earth was sent home without an extra penny.
People invariably believe that money can make them happy -- and rich people usually do
report being happier than poor people do. But if this is the case, shouldn't wealthy people
spend a lot more time doing enjoyable things than poor people?
Nobel Prize-winning behavioral economist Daniel Kahneman has found, however, that
being wealthy is often a powerful predictor that people spend less time doing pleasurable
things, and more time doing compulsory things and feeling stressed.
People who make less than $20,000 a year, for example, told Kahneman and his
colleagues that they spend more than a third of their time in passive leisure -- watching
television, for example. Those making more than $100,000 spent less than one-fifth of
their time in this way -- putting their legs up and relaxing. Rich people spent much more
time commuting and engaging in activities that were required as opposed to optional. The
richest people spent nearly twice as much time as the poorest people in leisure activities
that were active, structured and often stressful -- shopping, child care and exercise.
Kahneman and his colleagues argued that many people mistakenly allocate enormous
amounts of their time and psychological focus to getting rich because of a mental
illusion: When they think about what it would mean to be wealthy, they think about how
enjoyable it would be to watch a flat-screen TV set, play lots of sports or get a lot of
pampering -- our stereotypical beliefs of how the rich spend their time.
"In reality," Kahneman and his colleagues wrote in a paper they published in the journal
Science, "they should think of spending a lot more time working and commuting and a
lot less time engaged in passive leisure."