Money may buy happiness, but only up until a certain point – and it depends on how you define it.
According to researchers from polling company Gallup, global happiness studies often involve two measures – how people see their lives and how they live their lives. Both concepts are rooted in behavioural economics.
“How people reflect on their lives is very different from how people live their lives,” the researchers said.
“For example, if you interview two women – one with a child and one without a child – which one has more stress?
“On average, it’s the woman with the child. But if you asked them to rate their overall lives, whose rating is higher? It’s also the woman with the child. So, the woman with more stress also rates her life higher.
“This is exactly why we need to measure both life satisfaction and emotions.”
So how does money influence both measures?
One of the most famous studies on this question was conducted by Nobel laureates Daniel Kahneman and Angus Deaton.
They found that the more money Americans make, the higher they rate their lives. So, if happiness is how people see their lives, then money makes people happier.
This is also true internationally, according to Gallup’s researchers.
“The richer the country, the higher people typically rate their lives, according to the annual World Happiness Report issued by the United Nations.
“However, researchers at Purdue University and the University of Virginia recently found that worldwide, there appears to be a satiation point with respect to income – about $100,000 – and that being too rich might actually make you see your life a little worse.”
But how does money affect how people live their lives?
The Kahneman and Deaton study found that money has less of an effect on how people live their lives above incomes of $75,000 in the U.S.
A 2018 report published by Purdue and University of Virginia researchers, found that people are satisfied at $95,000 (R1,375,894) – but also that emotional well-being was satiated at between $60,000 (R869,000) and $75,000 (R1,086,232).
“However, there is substantial variation across world regions, with satiation occurring later in wealthier regions. We also find that in certain parts of the world, incomes beyond satiation are associated with lower (levels of happiness),” the researchers said.
Specifically, earning too much money can affect your happiness, due to a higher workload, and less free time, the study said.
It suggested that once a person’s basic needs are met, it could lead to increased competitiveness, with a weighted focus on material gain and social status.
For overall happiness, the highest satiation points seemed to form two general clusters.
The first was made up of regions with high satiation points. These included most ‘wealthy’ nations:
- Western Europe/Scandinavia – $100,000;
- Northern America – $105,000;
- East Asia – $110,000;
- The Middle East/North Africa – $115,000; and
- Australia/New Zealand – $125,000;
The second cluster had significantly lower satiation points, comprising typically ‘poorer’ nations:
- Latin America/the Caribbean – $35,000;
- Sub-Saharan Africa – $40,000;
- Eastern Europe/the Balkans – $45,000; and
- Southeast Asia – $70,000;
As South Africa falls in the latter cluster, it means that a South African earning more than R1 million a year (the global average happiness level), might not be any happier than someone earning $40,000 (R580,000) – the regional happiness level.