Study: Money Wont Make You Happy

June 30, 2006 -- Money won't buy happiness, says a group of distinguished economists and psychologists.

"Would you be happier if you were richer?" ask Princeton researcher Daniel Kahneman, PhD, and colleagues. Kahneman shared the 2002 Nobel Prize for applying the principles of psychology to economics.

Their answer: No. It's just an illusion that wealth brings happiness.

"When someone reflects on how additional income would change [their sense of] well-being, they are probably tempted to think about spending more time in leisurely pursuits such as watching a large-screen plasma TV or playing golf," Kahneman and colleagues observe. "But in reality, they should think of spending a lot more time working and commuting and a lot less time engaged in passive leisure. ... By itself, this shift in time is unlikely to lead to much increase in experienced happiness."

Kahneman and colleagues' theory appears in the June 30 issue of Science.

Money's Effect on Happiness Overrated

The distinguished scientists look at research into people's reported happiness and life satisfaction. They find that people are likely to overrate the joy-bringing effect of whatever they're thinking about at the time, whether it's money or the number of dates they had last week.

In reality, they say:

• Increases in income have a relatively brief effect on life satisfaction.
• When countries experience a sudden increase in income, there is not a corresponding increase in citizens' sense of well-being.
• Life satisfaction does tend to increase as a nation's per-capita income rises. But there is little increase in life satisfaction once per-capita income goes above $12,000 a year.
• Psychological studies show that the wealthier people are, the more intense negative emotions they experience. These studies do not link wealth with greater experienced happiness.

Why does increased income have so little effect on happiness? Research shows that:

• Relative income, rather than any certain level of income, affects well-being. If you get richer than your peers, you may feel you're better off than they are. But soon you'll make richer new friends, so your relative wealth won't be greater than it was before.
• People quickly get used to all the new stuff their money can buy.
• The amount of money people say they need rises along with their income.
• When you start making more money, you spend more time making money -- and have less leisure time -- than you did before. "The activities that higher-income individuals spend relatively more of their time engaged in are associated with no greater happiness, but with slightly higher tension and stressstress," Kahneman and colleagues note.

Focusing on the illusion that money makes you happy may have an unexpected side effect. It may make your life worse.

"This focusing illusion may lead to a misallocation of time, from accepting lengthy commutes (which are among the worst moments of the day) to sacrificing time spent socializing (which are among the best moments of the day)," Kahneman and colleagues observe. "The long-term effect of income gains becomes relatively small because attention shifts to less novel aspects of daily life."

SOURCES: Kahneman, D. Science, June 30, 2006; vol 312: pp 1908-1910. News release, Princeton University.