American people, in general, see a strong long-term causal relationship between money and happiness. However, the causal connection between money and happiness has been questioned for decades (e.g. Brickman et al, 1978). As pointed out by the Easterlin Paradox (1974), happiness does not always trend upward as real income continues to grow.
According to Nobel Laureates Kahneman and Deaton, happiness can be divided into two parts: emotional well-being and life evaluation. For example, when your grandma who was 100-year old dies of natural causes, and you are questioned how happy you are feeling from 0 to 10, you may say 0 (i.e. emotional well-being). However, if you are asked to rate your life happiness from 0 to 10, you may say 10 (i.e. life evaluation). The fact that your grandma died at 100-year old of natural causes may not change life evaluation in terms of happiness. The best empirical evidence indicates that emotional well-being does not change after some monetary point, in the US this would be around 75 thousand dollars/year. In other words, the fact that someone makes US$ 1 billion per year and you make 75 thousand, provides no evidence that they are happier than you, in terms of well-being (Kahneman and Deaton, 2010). Additionally, even this 75 thousand/year happiness level is questionable. Studies have argued that relative wealth can be more important for happiness than absolute wealth, where absolute wealth is your nominal monetary income and relative wealth is your monetary income measured in relation to other members of society, (e.g. Veenhoven, 1991; Fliessbach et al, 2007). Some studies report that individuals living in rich countries are not happier than in poor countries (Easterlin, 1974) and happiness is uncorrelated to stable living conditions (Inglehart and Rabier, 1984). Therefore, in poorer countries (i.e. most the world), this "required" number of ~$75000 could be even lower. From another perspective, many people in the US depict life in poor countries as sad. The average person living in the slums of Rio de Janeiro, for example, earns US$460/month. However, 85% of the favela residents like the place where they live, 80% are proud of where they live, and 70% would continue to live in their communities even if their income doubled (Data Popular Institute, 2013). (See our post on the Chilean 2019 Protest for another example).
Money by itself cannot make most people happy. Massive surveys adding up to 1.3 million randomly sampled individuals from 51 countries all indicate the same pattern: people are happier "in their late teens and early 20s. But as the years roll by, people become more and more miserable, hitting a nadir in life satisfaction sometime around the early 50s." Thus, although individuals' income tends to increase from one's late teens until their 50s, happiness levels constantly decrease (See graphs below). Moreover, many of the highest suicide rates in the world are in rich countries: US, Japan, Finland, South Korea, etc (United Nations World Health Organization, 2016). A salary increase from $75,000 to $500,000 may make you happy but this happiness can be temporary and it is not related to an intrinsic human need. Many people get happy when they buy a Ferrari (or any material good) because they were raised with that goal or they put that as expectation at some home point in their lives. The point is, an increase in happiness from $75,000 to $500,000 can be a factor of the cultural environment you are raised in. Not an intrinsic need for the human body, like eating and sleeping. No one needs half a million to meet basic human needs, probably not even $75,000. If anything, developed countries (especially the US) need to change the culture of their citizens to make people happier.
Life evaluation, on the other hand, seems to constantly increase with income growth (Kahneman and Deaton, 2010) with a diminishing return to scale. That is, a 10% salary increase for the average worker in Congo and Norway has the same positive effect on life evaluation, but the 10% wage growth of an average worker in Norway is a much greater monetary amount than the 10% wage growth of the average worker in Congo. This happens because the average salary in Norway is much higher than in Congo. In other words, if you give the median Norwegian worker a 100 dollar monthly salary raise they would not be much happier, but if you give a 100 dollar monthly salary raise to an average worker where the mean workers make less than 1 dollar a day then they would be happy. Therefore, very low amounts of money are associated with low happiness levels in both measures, well-being and life evaluations. If you have a limited amount of money that you want to donate and make the most with that money, in terms of improvement of happiness, you should donate to the very poorest countries in the world. Also according to Daniel Kahneman, happiness seems to be related to achieving expectations or goals. Many people in the US have the goal of getting rich and that hard work is a fundamental part of "success," in which “success” is defined by economic output. However, the relationship between mean child income ranks and parent income ranks is "almost perfectly linear" in the US even after controlling for race, educational level, gender, parents’ marital status, and other factors (Chetty et al., 2014: 2). The truth is that most rich people today are the ones who had investments in the 70s and 80s and not necessarily the ones who worked harder (Piketty, 2014). Therefore, Americans are creating expectations that most will not likely be able to fulfill, regardless of how hard they work, and this could potentially decrease their happiness levels.
Thus, it is unclear that redistributing money from billionaires to people who already have their basic necessities covered (e.g. ~$75000) will make Americans happier. Although many people in the US (and beyond) feel happy when they have more money, such feeling could be illusory, temporary, or could be caused by the way they were raised and not by human biological necessities, i.e. hearing from everyone that “you need money to be happy;” “the more money you have the happier you are;” “you want to be like the rich people.” A possibly better policy is to try to change America's culture so that people do not feel bad for not achieving their monetary goals, people do not envy richer individuals, people do not give up on their close relationships due to money, etc. On the other hand, life evaluations do seem to increase with income, although money has a diminishing return to scale. Therefore, a monetary donation to make people happy should be directed to the poorest of the poor, which are almost always outside developed countries. Very low-income levels are associated with low happiness levels in both measures of happiness, well-being and life evaluations.
Inequality, however, is clearly a major problem for freedom. Check our article "Inequality and Freedom".
- Brickman, P., Coates, D. and Janoff-Bulman: 1978, 'Lottery winners and accident victims: Is happiness relative?', Journal of Personality and Social Psychology, vol. 36, p. 917--27.
- Chetty, Raj, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez (2014). "Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States." Quarterly Journal of Economics 129(4): 1553-1623.
- Easterlin, Richard. (1974) Does Economic Growth Improve the Human Lot? Some Empirical Evidence” In: David, R. and Reder, R., Eds., Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz, Academic Press, New York
- Fliessbach K., B. Weber, P. Trautner, T. Dohmen, U. Sunde, C. E. Elger and A. Falk (2007). "Social Comparison Affects Reward-Related Brain Activity in the Human Ventral Striatum. American Association for the Advancement of Science Vol. 318, No. 5854, pp. 1305-1308.
- Inglehart, R. and Rabier J. R. (1984). "Du Bonheur ... Les Aspirations s'adaptent aux situations', Futurible, p. 29--58.
- Kahneman, Daniel, and Angus Deaton. 2010. “High Income Improves Evaluation of Life but Not Emotional Well-being.” Proceedings of the National Academies of Science 107 (38): 16489–93.
- Piketty, Thomas (2014). Capital in the twenty-first century. Cambridge Massachusetts: The Belknap Press of Harvard University Press.
- Veenhoven, Ruut (1991) "Is happiness relative?" Social Indicators Research. 24:1–34.