10 May Can money buy happiness? (ROLF DOBELLI)
The sun is burning on your back, and the air shimmers like glass above the sand. Your gums feel like sandpaper. You drank your last drop of water two days ago and you’ve been on all fours ever since, crawling toward an oasis on the horizon. How much would you pay for a liter of water right now?
Let’s say you’ve paid for and received the water. You’ve slaked the worst of your thirst. How much would you pay for a second liter? And for a third? Unless you happen to be some sort of fakir blessed with superhuman powers of endurance, you’d probably give your entire savings plus pension and holiday cottage for the first liter. For the second, maybe your Breitling watch. For the third, your headphones. For the fourth, your insoles. Economists call this diminishing marginal utility. Each additional liter yields less marginal utility than the last, and after a certain point it yields nothing at all. This holds true for virtually all goods—water, clothing, TV channels—but above all for money. Which brings us to a question many thousands of years old: can money buy happiness? Here’s a test question: how much would you have to earn per year in order to feel that additional income would no longer have any effective impact on your perceived wellbeing? Write down the figure in the margin before reading on.
Research offers clear answers. If you’re living in poverty, money plays a major role. Financial difficulties are sheer misery. If you’re living on a moderate income of $38,000 per year, money plays a more moderate role. Above a household income of $75,000 per year (in San Francisco a bit more, in Cincinnati a bit less), the effect of additional income shrinks to nil—and remains there even if you reach the million mark. It’s not all that surprising. Imagine the life of a billionaire from sun-up to sundown, moment by moment. Even rich people have to brush their teeth. They sleep badly sometimes. They feel like crap, argue with their families, fear age and death. On top of that they have a whole retinue of staff to manage, the media to fob off, and a flood of begging letters to work through. Does having an Olympic-sized swimming pool in your garden really cancel all that out? In a well-known study from 1978, researchers analyzed the life satisfaction of lottery winners. The result? A few months after their big win, the brand-new millionaires were no happier in any significant sense than before.
The economist Richard Easterlin measured the life satisfaction of Americans in 1946 against that of Americans in 1970. Although living standards nearly doubled during this period (by 1970 nearly everybody had a car, a fridge, a washing machine and hot water), life satisfaction had remained fairly stable. Easterlin found similar results in the eighteen other countries whose data he compared. In other words, people were no happier with their lives in 1970 than immediately after the war. Material progress was not reflected in increased life satisfaction. This revelation has been termed the Easterlin paradox: once basic needs have been met, incremental financial gain contributes nothing to happiness.
Why, then, do we keep yearning to be millionaires—in the face of all scholarly consensus? The main reason is that wealth is relative, not absolute.
Let’s say you and your co-worker have landed a series of very profitable contracts for your employer. Which would you prefer: a) you are given a bonus of $10,000 while your colleague gets nothing; or b) you get a bonus of $15,000 while your colleague gets $20,000? If you’re like most people, you’d choose the $10,000—even though the second option would make you richer.
Imagine you’ve bought a nice piece of land and built a house. The house is magnificent, with at least three more bedrooms than you need. One year later, somebody else buys the neighboring plot and constructs a house so lavish it makes yours look like a garden shed. What happens? Your blood pressure rises and your life satisfaction drops—even though you’re still living very well.
Money is relative. Not just in comparison to others, but in comparison to your past. If you earned $50,000 per year during the first half of your career and today you earn $75,000 you’ll be happier than if you first earned $75,000 and now earn just $60,000. This is despite the fact that, averaging the figures, you come out better off overall in the second scenario.
Simply put, your level of wealth—above the poverty line—is primarily a matter of interpretation. But this is good news; it means it’s up to you whether money makes you happy or not.
There a few rules of thumb for dealing with money. The first has been termed by some linguistically adventurous individuals fuck-you money, in reference to the last two words—ever, presumably—you will yell at your boss before storming out of the office. Basically, fuck-you money refers to the savings that would allow you to quit your job at a moment’s notice without ending up in dire financial straits. One year’s salary, say. Fuck-you money is freedom. More important even than material independence is that fuck-you money allows you to see and think objectively. So if you haven’t saved up your fuck-you money yet, keep your fixed costs low. The lower your outgoings, the quicker you’ll reach your goal. In any case, it’s a nice feeling to have money without spending much of it.
Two: don’t react to minor fluctuations in your income or assets. Has the value of your stock portfolio risen or dropped by one percent today? Don’t let it worry you. Basically, don’t think so much about money. It won’t multiply more quickly the more often you think about it.
Three: don’t compare yourself with the wealthy. It will make you unhappy. If you must, compare yourself with those who have less than you do—but it’s better not to compare yourself with anyone at all.
Four: even if you’re filthy rich, live modestly. Wealth makes people jealous. Anyone who has enough cash can buy a luxury yacht—there’s no skill to that. If you’re a billionaire, it’s more impressive not to buy one, to live modestly.
Essentially, once you’ve left the poverty line behind you and saved up a financial safety net, money is not among the factors that contribute to a good life.
The Art of the Good Life
Rolf Dobelli
