Does Money Buy Happiness?

Historically the province of philosophers and theologians, the relationship between wealth and happiness has recently been taken up by a cadre of social scientists seeking to quantify and compare levels of well-being worldwide.

The results of their research, thus far, are clear: money does buy happiness—but only to a point. Study after study shows that inhabitants of richer countries are, on average, significantly happier than those of poorer ones. This is true even controlling for other variables that rise with income and that may influence personal happiness: education, political freedom, women's rights, and so forth. National income appears to be one of the best single predictors of overall well-being, explaining perhaps 40 percent of the difference in contentment among nations. For individual countries, with few exceptions, self-reported happiness has increased as incomes have risen.

The attached chart shows survey data on happiness for fifty-four countries, compiled throughout the 1990s by the Dutch sociologist Ruut Veenhoven. These data indicate a robust, if inexact, relationship between per capita income and "life satisfaction."Veenhoven's findings provide an unexpectedly sunny view. First, they indicate that most people worldwide say they are fairly happy. It is debatable whether most people have ever viewed life as nasty, brutish, and short; but on balance, they don't now. (Even citizens of impoverished or politically star-crossed countries, such as the Philippines and Romania, or of countries with high levels of income inequality, such as Brazil and the United States, report being at least somewhat happy on average.) Moreover, though the fact that richer countries are in general happier than poorer ones may not seem terribly surprising, it does suggest that continuing economic development will generate rising happiness worldwide.

That said, there are clear limits to what money can buy. Although improvements in income produce large improvements in happiness for poor countries—gains that continue to rise with income well above the level where basic food, shelter, and sanitation needs have been met—the law of diminishing returns takes effect at higher income levels. Above about $20,000 per capita, increases in wealth yield at best minimal increases in happiness. This effect takes place at both the individual and the societal level. In poor societies those at the top of the socioeconomic ladder are significantly happier than those at the bottom; in highly developed societies there is little class difference in happiness. (In fact, oddly, in wealthy nations both those in the top 10 percent of the socioeconomic spectrum and those in the bottom 50 percent appear to be slightly happier, on average, than those in between.)

Robert E. Lane, a political scientist at Yale, argues that the leveling off of happiness in wealthy societies reflects more than just diminishing returns. Lane suggests that happiness is derived largely from two sources—material comfort, and social and familial intimacy—that are often incompatible. Economic development increases material comfort, but it systematically weakens social and familial ties by encouraging mobility, commercializing relationships, and attenuating the bonds of both the extended and the nuclear family. In less developed countries, where social ties are often strong and money is scarce, the tradeoff works overwhelmingly to society's advantage—the gains in material comfort more than outweigh the slight declines in social connectedness. At some point, however, the balance tips and the happiness-diminishing effects of reduced social stability begin to outweigh the happiness-increasing effects of material gain. Lane believes that the United States has passed this tipping point, and that we will actually become unhappier as incomes rise further.

Lane's argument is controversial. It is unclear that happiness is actually falling in the United States. Clinical depression is rising, which Lane cites as one basis for his argument, but it still afflicts only a small percentage of the population. Nonetheless, it is true that happiness in the United States has not risen over the past fifty years, despite an average increase of more than 85 percent in the real value of family income. And although the weakening of the relationship between money and contentment perhaps ought to have induced Americans to look elsewhere for sources of happiness, that hasn't happened. Indeed, as the graphs below show, American have become more materialistic over the past three decades.

The Western notion of progress was shaped during a centuries-long period when rising wealth almost certainly bought rising happiness. Only recently have we left that era behind—and our society has not yet adjusted. Conditioned to value financial achievement, we may cling to materialism even as it makes the contentment we seek more elusive.

Don Peck is the editor of The Atlantic magazine and the author of Pinched: How the Great Recession Has Narrowed Our Futures and What We Can Do About It.