The following is a guest post fromKent Irwin, founder eFinPLAN.com
A common belief held by many people is that if they had more money they would be happier. Do people become happier, have a greater sense of contentment and enjoy life more as they make more money and accumulate a larger net worth?
It may seem silly to investigate this question since everyone assumes “more is always better.” When we have more money aren’t we generally happier because we live longer, have better health care, less stress, live in safer neighborhoods, and are able to do more fun things? This question has always intrigued me, because I am regularly around very wealthy, middle income and poor people. The people in the middle and the poor always assume that the very wealthy are happier, but I have never noticed any extra happiness in my wealthier acquaintances.
A year ago The Journal of Financial Services Professionals, published an excellent article entitled “How Are Income and Net Worth Related to Happiness” This scholarly financial journal is published by the Society of Financial Services Professionals and it is an excellent source of information. I find this magazine better than most other financial magazines published for professionals and consumers because it has very little advertisements, its articles are extensively researched and footnoted, articles pass a review board, and it is held in high regard by the legal and tax community.
Michael J Roszkowski, Phd., and John Grable Phd. analyzed dozens of research based sources for their 8,625 word article (not including 107 footnotes!) I find it astonishing that this article didn’t create a media splash. The following is a snapshot of many of their findings:
- There is little difference between middle class and wealthy when it comes to happiness “correlation between income and happiness is only about .20, meaning that income can only explain about 4% of the differences in people’s happiness.
- Moreover, the link between income and happiness is due mainly to the difference in happiness between the poor and the middle class rather than between the middle class and the rich.
- When the poor are able to overcome poverty, they do experience greater happiness but those in the middle as they progress financially experience little measurable increase in happiness.
- Contrary to the marketers of luxury items, having more of them doesn’t make you happier once you’ve achieved a middle class lifestyle. With each increase in income there is a “progressively smaller return in happiness.”
- If you make more money than your neighbors, or keep pace with them you will feel a little happier than if you do not.
- High levels of debt in the upper and middle class affect the feeling of happiness that might normally come with more wealth. People that are worried about money will find it a greater challenge to be happy, but financial success does not necessarily make people happy in all areas of their lives.
- Their studies reported non-financial factors that do make people more happy; people who are self employed, religious, and married are happier than those that work for others, are not religious or single.
I wished that Roszkowski and Grable’s study examined the affect of charitable giving to happiness, but the book “Who Really Cares“ by Arthur C. Brooks found that people who donate more money are happier.
So there you have it, if you are in poverty, and you are able to pull yourself out of it you will be happier. But if you are middle class or higher, more income and wealth will not make you happier.
If you are self employed, married and are religious you are perhaps happier than anyone. I would glean from these findings that if you have greater control on your career, have good relationships, have a religious faith, low debt, and donate money that you will be happier.
I am still searching for an answer to my most pressing question: Does the lowering of one’s golf handicap affect happiness? I don’t think I will ever find out from personal experience so I guess that will have to be left to another study.
Kent E. Irwin is founder of eFinplan.com, online comprehensive financial planning software for consumers. He is also a Chartered Financial Consultant (ChFC), a Chartered Advisor in Philanthropy (CAP) and a Chartered Life Underwriter (CLU). He can be reached at firstname.lastname@example.org.