Money can (not) buy happiness

Last month, Germany’s federal government published the fourth poverty and wealth report. As expected, the publication kicked off a controversial debate. Apart from the internal wrangling of some ministers about the phrasing of individual paragraphs, media professionals and the public at large are discussing what poor and rich mean and whether people whose incomes would classify them as rich (more than double the median income) also feel rich. Being “rich” would certainly be less of a thorny subject if we did not see it as a means to an even more desirable end: the absence of worries, the fulfilment of wishes, and a happy life after all. Is this actually the case?

The Nobel laureate Daniel Kahneman and his colleague Angus Deaton (2010) had a look at exactly this question. They explored data from 450,000 people (from the Gallup-Healthways Well-Being Index) to understand the link between household income and well-being. The researchers took care to distinguish between two concepts that are often confused: emotional well-being (happiness) and life evaluation (satisfaction). Emotional well-being refers to everyday feelings that make life more or less pleasant, e.g. the frequency and intensity of happiness, amazement, or affecting or their counterparts, anger, fear, and sadness. Life evaluation, in turn, refers to how people think about their lives – from the best possible to the worst possible life they could imagine.

The data indeed shows that the life evaluation improves with increasing annual income. The link is more surprising in the case of emotional well-being: Up to approx. €60,000, emotional well-being increases in line with income. Then, saturation strikes. More income does not mean more emotional well-being. Money and life satisfaction go together – money and happiness only to a certain point. Again, money lives up to its ambivalent reputation. It will be worth to consider what this means in practice.