Can money buy happiness?

Can money buy happiness?
Yes, if you re poor.

Money is better than poverty, Woody Allen quipped, if only for financial reasons. If we re starving or homeless, money can bring a better life.

But beyond a certain point ” a surprisingly low point ” more money doesn t deliver more happiness.

A study of tens of thousands of people in 29 countries compared average life satisfaction in each country with average purchasing power (see Figure 9).^[1]It showed that in poor countries, purchasing power and life satisfaction are clearlyrelated. Yet once countries are half as rich as America, there is absolutely no relationship between money and happiness.

Figure 9: Life satisfaction and purchasing power in 29 countries

Looking within individual countries bears this out. Very poor Americans are less happy, but otherwise money does not affect happiness. Being one of the 100 richest Americans adds only a smidgeon to happiness.

Or consider a study of 22 lottery jackpot winners, who showed initial euphoria. It didn t last. Within a year, the winners were no happier than before.

More evidence: real purchasing power in three rich countries doubled between 1950 and 2000, yet happiness levels didn t rise at all. As countries become wealthier, depression soars, with victims also suffering at a much younger age.

The evidence is overwhelming. Being moderately well off means that you are happier than if you were very poor. But once you are well fed, clothed, and housed, getting wealthier probably won t make you happier.

In the nineteenth century, John Stuart Mill gave one excellent reason for this being true ” we don t want to be rich, we just want to be richer than other people. When our living standard improves but everyone else s does too, we don t feel better off. We forget that our cars and houses are better than before, because our friends all drive similar cars and have just as pleasant homes.

Right now, I m living in South Africa. Here, I feel rich. In Europe or America, I don t. My feeling has nothing to do with how well off I am and everything to do with how well off other people are. Living standards are much lower in South Africa, so I feel wealthy.

There s also the pain and hassle of making money. On April 8, 1991, Time magazine s cover story highlighted the price paid for successful careers:

• 61 percent of 500 professionals said that earning a living today requires so much effort that it s difficult to find time to enjoy life.
• 38 percent said that they were cutting back on sleep to earn more money.
• 69 percent said they d like to slow down and live a more relaxed life ; only 19 percent wanted a more exciting, faster paced life.
• 56 percent wanted to find more time for personal interests and hobbies, and 89 percent said it was important to them to spend more time with their families, something that their careers made difficult.

How are we doing now? Have many of us fled the rat race? Nah. We re still chasing more money for more time. The average working American now works 2,000 hours a year. That s two weeks more than in 1980! And the average middle-income couple with children now work 3,918 hours between them ” seven weeks more than just 10 years ago.

More money can be a trap, leading to more spending, more commitments, more worry, more complexity, more time on administering money, more desires, more time at work, less choice about how we spend our time, and degradation of our independence and life energy. Our lifestyle locks us into our workstyle.

How many houses or cars do we need to compensate for heart attacks or depression?

^[1]See Martin E P Seligman (2003) Authentic Happiness: Using the New Positive Psychology to Realize Your Potential for Deep Fulfillment, London: Nicholas Brealey.

http://flylib.com/books/en/1.522.1.36/1/

Inequality in Britain is of developing world level

Inequality in Britain is of developing world level

By Edmund Conway Economics Last updated: November 25th, 2009

18 Comments Comment on this article

I missed this report yesterday but it’s an interesting one. According to consultants AT Kearney, the richest 1pc in the UK hold some 70pc of the country’s wealth. That there is this divide between rich and poor is not exactly new – but the scale of it, and the likelihood that it is not being narrowed by the financial crisis, is a big worry. Indeed, according to the report, in the US the amount of financial assets owned by the richest 1pc in the US is far, far lower at 48pc, and only 34pc in Australia.

This must, to a large degree, be due to the fact that the UK set itself up in recent years as a haven for the super-rich, with its relatively generous rules on capital gains tax, because the income tax system itself is rather more redistributive than in the US. But the Kearney report is interesting because, unlike the traditional measure of inequality, the gini coefficient, it focuses not on income (the flow of money) but on actual substantive wealth (the stack of it that sits beneath us).

Says Penney Frohling, a partner at AT Kearney: “To understand the impact of the market crash, though, you need to look at wealth – not just how much people hold, but how it is held across different asset types. This is harder to do but drives quite different insights about how deeply and how widely the market crash and subsequent recovery have affected investors across age and wealth bands.”

“On an income basis, the UK and Australia have similar levels of equality according to the UN, with the US having proportionately more very high- and very low-earners. But in terms of the distribution of what people own rather than what they earn, the UK picture is more like an emerging market – though of course at a higher level.”

In the latest UN report on the gini coefficient (in which a score of 0 means absolutely equal income across the population and 100 means one person has all the income), the UK scored 36.0, Australia 35.2, USA: 40.8.

In part the poor score for the UK is due to its relatively ungenerous pension provision, compared with Australia where there is a compulsory pension savings scheme.

But what I find particularly intriguing (and this is something which won’t be clear for another year or more) is the question of whether this crisis has levelled out those inequality gaps. The Great Depression and its aftermath most certainly did, but despite the fact that the gini coefficient (certainly in the US, probably in the UK) are at levels comparable with the late 1920s and early 1930s, we haven’t yet seen any kind of dramatic social backlash as a result.

http://blogs.telegraph.co.uk/finance/edmundconway/100002243/inequality-in-britain-is-of-developing-world-level/