Happiness for Sale: The Psychology of Money
November 12, 2024
Writer: Tyler Peterson
In a world of ever-changing fashion trends, instant gratification, and six-dollar cartons of eggs, most people would probably say their goal in life is to make a significant amount of money. Whether it's the pressure to keep up or simply the desire to feel in control in an unpredictable world, the pursuit of wealth seems to promise a sense of stability and satisfaction. While money can ease materialistic worries, can it really buy happiness?
According to research, money can buy happiness to some extent. People living in poverty often experience lower emotional well-being and life satisfaction. In a 2012-2018 study, researchers randomly gave different sums of money to families in rural Kenya. Four months later, the families who received $1,000 were happier than those who got $300, and both groups were happier than those who received nothing. From this, it’s clear that financial gains can make a major difference in overall well-being, especially for people with fewer resources; but it’s not always that simple. The Gallup World Poll Survey analyzed data from over 1.7 million people across 164 countries from 2005 to 2016, measuring life satisfaction, positive and negative emotions, and household income. The results showed happiness is higher when people earn more, but only up to a certain threshold. After that, the effect of more income on happiness begins to plateau. In some cases, very high incomes were even linked to lower life satisfaction and well-being. Generally, once people can comfortably cover their needs, more money doesn’t necessarily make them happier– but why?
Many psychological phenomena have been used to explain this plateau effect. The first of which is the concept of habituation or the “hedonic treadmill”. As we grow accustomed to a certain lifestyle, we may no longer appreciate it as much as we once did. Despite major positive or negative life changes, we adapt, and quickly return to our baseline level of happiness, perpetuating a cycle of constantly pursuing the next “big thing”. Another theory used is the “Luxury Trap”– this can be thought of as lifestyle inflation. What once may have seemed like a luxury, becomes a necessity accompanied by new obligations. You may have once dreamed of a big, beautiful house– though once you acquire it, and the initial excitement wears off, you’re stuck with the time, stress, and financial burden of its upkeep. Treating yourself to getting a manicure once may turn into feeling as though you could never live with bare nails again despite their price tag. Together, these phenomena create a cycle where no matter how much we have, it never feels enough. This tendency highlights a fundamental aspect of human nature: our relentless drive for more, which often leaves us chasing satisfaction rather than savoring what we already have.
So, how can you use money for your mental benefit? Edward Deci and Richard Ryan say we tend to feel happier when we fulfill our three basic psychological needs – the need for competence, connection, and autonomy. For the first need, think: acquiring new skills. Whether it’s pursuing an additional degree or simply taking a cooking class, spending on learning more knowledge or new abilities is shown to be beneficial. To become more connected, spend your money on games to play with friends, coffee dates, or volunteering. The latter of the three is the most broad, ranging from solo travel to self-help books.
Ultimately, while money can relieve us of hardship and provide comfort, its ability to buy happiness is limited. True contentment comes not from what we own, but rather how we choose to spend. By focusing our finances on experiences, growth, and relationships, we can break the cycle of endless wanting and create a life rich in meaning rather than material.
