ECONOMICS is at its best when it tears into the received wisdom. Take the almost universal view that money doesn’t buy happiness, and that millionaires are just as likely to be miserable as the rest of us. Guess what – it’s nonsense.
On average, money is actually very good at buying happiness, as the experts on the matter, Betsey Stevenson and Justin Wolfers from the University of Michigan, have demonstrated yet again. Their latest paper, published by the Brookings Institution, is even more fascinating than their previous contributions.
They assembled a panel of 1,014 individuals with varying incomes and asked them whether or not they are happy, and how satisfied they are with their lives. The findings are dramatic. Happiness and life satisfaction are almost perfectly correlated with income. The results are one of those truly rare things in empirical economics: unambiguous, hugely powerful and awe-inspiring, with vast political and cultural implications.
Around 35 per cent of members of households earning under $10,000 a year claim to be very happy, 44 per cent fairly happy and 21 per cent not too happy; 24 per cent are very satisfied, 19 per cent somewhat satisfied, 25 per cent somewhat dissatisfied and 32 per cent very dissatisfied.
Yet as soon as income rises the share of respondents describing themselves as very happy goes up, and those as not too happy goes down; similarly, the proportion describing themselves as very satisfied jumps and that as very dissatisfied collapses.
At $10-20k, 42 per cent are very happy and 47 per cent very satisfied; 15 per cent are not too happy and 11 per cent very dissatisfied. By $30-$40k, 55 per cent are very happy and just 4 per cent not too happy; by $50-$75k 64 per cent are very satisfied and just 5 per cent very dissatisfied. There’s no stopping the trend: as income rises, happiness and satisfaction levels increase just as inexorably.
The $100-$150k threshold is highly important: by that level, for the first time in the survey, nobody is “not too happy” anymore; everybody is either very or fairly happy. It is also the cut off point for life-satisfaction: at that level, for the first time, nobody describes themselves as “very dissatisfied” and just 3 per cent are still somewhat dissatisfied. 60 per cent are very happy and 40 per cent fairly happy; 72 per cent are very satisfied and 26 per cent somewhat satisfied.
It gets better. By $250-$500k, 83 per cent are very happy and just 17 per cent fairly happy – and for the first time everybody is either very satisfied (93 per cent) or somewhat satisfied (7 per cent). As if that were not crazy enough, hiking incomes even further unearths a truly mind-boggling finding: those on $500k and above are all very happy and very satisfied. It’s a complete knock-out – there are no miserable millionaires, at least in this small sample. Having a very high income eradicates unhappiness. Of course, neither I nor the authors of the study actually believe that nobody rich is sad: there are plenty of high-profile exceptions in real life. But the point is that there is now overwhelming evidence that wealth is good for one’s well-being, with no upper limit.
This is not just an American finding. It applies universally, from Iran to the UK, as a poll of 25 countries demonstrates. Life satisfaction rises logarithmically as GDP per capita increases – rich nations have more satisfied citizens than poorer ones. The findings apply within and between countries, and there is no satiation point at which well-being ceases to increase. Many readers will still refuse to accept it – but it is clear that, on average, money does buy happiness, and you can never have too much of it.
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