The Contribution of Money to Happiness And Why Spending Makes Happier Than Earning
A stable financial situation is essential for a person’s subjective well-being. Financial stability is reached when basic needs are met, and a comfortable life is feasible. From that point on an increased income will not lead to a significant increase in Happiness. Not only earning a certain amount of money contributes to Happiness but also the way one spends it. Spending money on others instead of oneself results in more Happiness. The power of thoughts and mental patterns shall not be forgotten since wealth is a subjective matter that is defined and perceived individually by each person.
To be clear about that: Money DOES make you happy – up to a certain point. While there are many opinions and perceptions around money, it is proven that financial stability provides safety and makes a big contribution to our overall Happiness. This is especially true for the absence of money. When people reach a point in their lives where all their basic needs are met, normally other Happiness-Factors like living a purposeful life, become more important. The Happiness effect of money is particularly strong with low incomes and less clear with high incomes. The paradox is that income is very important for the Happiness of people when they are impecunious, but much less important when they are financially secure or prosperous. A feathered nest simply brings peace of mind, but how many feathers do you need?
The Price of Happiness
People should at least make enough money to live comfortably and avoid the pressures of economic constraints. While a “comfortable life” leaves room for interpretation we will orientate on the amount of money needed to cover socially defined material needs for now. In Central Europe, this is currently around € 58,000 a year. The increase in Happiness that the transition from an average to a high income brings is very small and the transition from a high to a very high income is zero. From this point of view, a logical conclusion would be to set each employment contract at € 58,000, right? Unfortunately, life is not fair, but it is still worth it having this fact in mind.
Not Earning But Spending Makes Us Happy
Not only the pure amount of money available through income is relevant for our overall Happiness. Also, the way we spend it is important. Money spent on costly consumer goods, like expensive clothes or a sportscar, does not produce any lasting increase in Happiness. But money spent on others does.
An interesting study by scientists of the University of British Columbia and Harvard Business School revealed that spending money on others might be the secret for Happiness. In this study, 632 Americans were asked about their annual income and their expenses. The scientist differentiated into categories of personal spending and prosocial spending. What they found was, that there was no increase in Happiness through personal spending. Sorry, but buying a dope new jacket won’t fix your lack of Happiness. Interestingly, buying a jacket for someone in need would do so as Elizabeth Dunn, Lara Aknin and Michael Norton found that prosocial spending is connected to a higher Happiness. The three conclude that how people choose to spend their money is at least as important as how much money they make.
All the money in the world won’t bring Happiness if there is no satisfaction. Feeling wealthy is an important step towards perceived overall Happiness concerning one’s financial situation. This emotional state of mind does not depend on the actual amount of money in the bank nor the annual income. The definition of wealth is highly subjective. The Oxford English Dictionary defines wealth as:
“a plentiful supply of a particular desirable thing”.
This definition does not include any financially associated words. It implies that every person decides for each its own what is desirable. In the end, feeling wealthy comes down to gratitude. Acknowledgement and Appreciation for positive things in life will lead to a feeling of wealth. We tend to be stuck in negative thoughts with a hint of greed and envy. Once recognized that feeling impecunious or less wealthy is a choice, this unhealthy habit can be broken.
Do you want to develop healthy habits, feel wealthy and strengthen your financial situation? In our Happiness Challenge™, we developed one task per day for you and your happiness. We provide you with state-of-the-art knowledge from Neuroscience, Economics and Positive Psychology as we committed to your best performance and happiness. We know that changes can be tough if the environment stays the same. Therefore, we gather a striving community of like-minded people who support and inspire each other. Become the happiest version of yourself and join our Happiness Challenge™ now to receive science-backed information and daily missions that make the implementation of new habits simple and effortless.
 Straesser, A. (2017). The Happiness Strategy.  Frank, R. H. (2004). How not to buy happiness. Daedalus, 133(2), 69-79.  Dunn, E. W., Aknin, L. B., & Norton, M. I. (2008). Spending money on others promotes happiness. Science, 319(5870), 1687-1688.