Along with this clichéd statement, you’ve probably heard that money does buy happiness. Both may be true. Economist Richard Easterlin argued that once basic financial needs have been met, more money doesn’t really do much to make a person happy. Researchers set the limit at around $75,000, recently prompting one CEO to give away all his earnings above that amount to his employees! This is by no means the last word, nor a directive to be unhappy until you make $75,000 and no happier afterward. More recent research worldwide indicates the exact opposite: The more money, the better. The organizational book's authors said, “If there is a satiation point, we are yet to reach it.”
Given these mixed findings, the relationship between happiness and income is probably not direct. In fact, other research suggests your level of income is less important than how you spend it. Think about why you may be motivated by money. Do you envision the number of zeroes in your bank account increasing? Probably not. You’re probably more motivated by what you can buy with the money than by the money itself. From research, we know:
Giving money away makes people happier than spending it on themselves. In one study, students were given money and told to either give it away or spend it on themselves. Then the study asked people to give away their own money. Either way, people were happier giving away the money, even if the givers were relatively poor. What seems to matter is not the amount, but how much impact you think your donation will have on others.
People are happier when they spend money on experiences rather than products. Research professor Thomas Gilovich says we think to ourselves, “I have a limited amount of money, and I can either go there, or I can have this. If I go there, it’ll be great, but it’ll be over in no time. If I buy this thing, at least I’ll always have it. That is factually true, but not psychologically true. We adapt to our material goods.”
People are happier when they buy time . . . but only if they use it well. Outsource tasks when you can, for instance, and “think of it as ‘windfall time’ and use it to do something good,” says researcher Elizabeth Dunn.
Saying that money brings more happiness when spent on our experiences (and the time to do them) may seem counterintuitive until we think about it closely. What did you think of your cell phone when you bought it compared to what you think of it now? Chances are you were interested and engaged when you bought it, but now it is an everyday object. For experiences, what did you think of your greatest vacation when you were on it, and what do you think of it now? Both the experience at the time and the recollection now may bring a smile to your face.