Does money make us happier?

Turns out, it is the same mechanisms that apply: more money makes us a bit happier; we compare ourselves with our neighbours; and the things that are near and dear to us count the most.

“We have this notion that people in developing countries care most about eating enough food, having a place to live, and meeting their most vital needs. Social comparison is something only the rich care about,” says Arild Angelsen, professor of economics at the Norwegian School of Economics and at the Norwegian University of Life Sciences (NMBU).

Angelsen is the co-author of a new study that dispels these entrenched ideas.

Social comparison of great importance
The researchers found that absolute income is important for people’s well-being. This is a well-known finding: increased income increases happiness, and the effect is greater for people who at the outset have low income.

What surprised the researchers was that social comparison – how prosperous people feel they are in comparison with their neighbours – also matters a good deal to poor people in developing countries. 

“The point is that the differences are not as great between poor and rich when it comes to subjective well-being,” Angelsen says. “We have often studied people in developing countries as though they belong to another category – another race – but it is largely the same mechanisms that apply. No matter where in the world they are, people compare themselves with their neighbours.”

Multi-year study
Around 8,000 households in 24 developing countries in Asia, Africa, and Latin America have been surveyed. Researchers collected detailed socio-economic data from 333 villages.

The participants were asked a number of questions about income and wealth and also about their life satisfaction, subjective well-being, and happiness. They also provided information on their household economy compared both with others in the village and with the situation five years before.

What the researchers found was that many of the same mechanisms apply in both industrialized and developing countries. Social comparison and consumer pressure affect the satisfaction of poor people as well, and the difference is not as great in this area as many claim.

“But income is also important,” Angelsen adds. “People in rich countries are on the whole happier than in poor countries. In economics we speak of the ‘diminishing marginal utility’ of money, meaning that one euro or dollar extra is more important to a poor person than to a rich person. Economic growth – that is, an increase in average income – is therefore greatly important in poor countries, and the saying ‘poor but happy’ is not empirically founded.”

Can happiness be measured?

Arild Angelsen har bidratt i et stort forskningsprosjekt om lykke.

Arild Angelsen has contributed to a major research project on happiness.

“A question we asked in our survey was ‘How satisfied are you with your life during the past 12 months?’ The reply you receive is of course highly subjective, but merely because something is subjective does not mean it cannot be measured,” Angelsen says. He points out that much of the literature uses “subjective well-being” rather than “happiness”, so happiness is more than only feelings. Moreover, self-reported happiness tallies well with how others perceive you. 

One of the most important findings within happiness research is what is known as the Easterlin paradox. If you compare people with differing incomes from a given country, richer people are happier than poor people. However, the average citizen in Western countries has not become happier during the past 50 years even though the average income has increased many times over. Therein lies the paradox: it is not absolute but relative income that counts.

“In addition to social comparison, one explanation of this paradox is what is called the hedonic treadmill,” Angelsen explains. “For example, when your wages go up, you experience an immediate increase in happiness, but after a short while you become used to the change. Some studies show that already a year after the wage increase, the feeling of happiness has been halved. This means that we adapt to the ‘happiness’ and adjust our demands and expectations.”

Happiness – a societal responsibility
In poor and rich countries alike, there is a tendency to view happiness as a personal responsibility rather than as the responsibility of the authorities.

“I believe this is the wrong starting point,” Angelsen contends. “The authorities should make conditions right for citizens to be happy. It is therefore important to see what creates happiness. Happiness research offers many answers to what contributes to this: secure work, low crime rates, good family and social relations, and participation in voluntary work are important factors that create happiness.”

Many of these factors are found in the survey. It shows that good social relations and trust are key indicators of happiness, while illness and the loss of possessions (theft is common in many of the regions surveyed) have the opposite effect.

Experience from fieldwork
Angelsen carried out fieldwork in the Indonesian countryside for his doctoral dissertation in the 1990s. Many there practised a type of slash-and-burn agriculture, where for several months each year they would move to and live on a small rice field several kilometres from their village. At the time, Angelsen asked his informants whether it felt lonely to live out there. The reply, on the contrary, was that many enjoyed it. Out in the rice field there was less pressure to buy things during the weekly village market, nor did the kids nag their parents to buy sweets. Such pressure to buy things and keep up with the Joneses is not only a feature of rich countries.

“Many studies from Western countries have found a U-shaped connection between happiness and age, with the end of the 40s as the low point. But we found no such connection. Perhaps mid-life crises are a Western phenomenon?” the economics professor wonders.

The findings have been published in the Journal of Happiness Studies.


Published 4. May 2015 - 14:37 - Updated 5. May 2015 - 10:10