At some point in your career you have probably wrestled with the quandary of doing what you’d really like to do versus doing what can make you the most money.

You’re in a very lucky minority if you haven’t, as it means you’re being paid handsomely to do what you love.

Most of us have made a sacrifice at some point on one side of that question or the other. Many of us will continue to grapple with what equals the best balance between one of those two points for most of our careers. At one extreme sits doing what we love for no money and, at the other, is being paid handsomely to do something that ultimately is soulless.

The question many of us want to know is what will make us happiest? Pursuing our interests or becoming rich?

For most us, there is trade off involved.  

In this blog I’m going to take a look at studies on the correlation between wealth and happiness and what that means for how we should spend our lives.

What’s the evidence?

Academics have conducted a vast amount of research in this area, which has mostly concluded that yes, of course, people over a certain level of income are happier than those in poverty. That’s obvious.

There are certain unavoidable building blocks on the road to happiness and the most basic of these are security, shelter, food and water. It doesn’t take a genius to work out that someone who lives in England, on average, will be happier at the moment than someone who lives in Syria, for example.

But what happens when our basic needs have been met? Does our happiness keep increasing as our income rises?

The prevailing opinion among academics until recently has been that, yes, average levels of happiness tend to rise with income but only up to a certain point. Some studies have suggested that at a certain level of income our happiness plateaus.

Was it fun at the time or only looking back afterwards?

At this point it’s necessary to define happiness. There are two ways in which we evaluate our own wellbeing. One is via our ‘Being self’, which is how we feel in each moment. The other is created by our ‘Remembering Self’, which creates stories of how our life is going through memories.

The two analyse the same situation differently, so it’s important to separate one out from the other. Consider, for example, any experiences you have had that you did not enjoy at the time but subsequently remember in a positive light (see Professor Daniel Kahneman’s Ted Talk on this here).

The impact of high income is different on our life satisfaction (as generated by our ‘remembering selves’) to its impact on our emotional wellbeing, which is how we feel on a daily basis.

A study (read it in full here) found that, in the US, emotional wellbeing is satiated at an income of US$75,000 a year (the amount varies by country and, across the world as a whole, the figure is about US$15,000 per year). Income higher than this does not materially affect emotional wellbeing, presumably because it is tied to longer working hours, less time with friends and family and increased pressure at work.

However, life satisfaction does keep increasing as income rises beyond US$75,000, suggesting that higher income enhances the stories we create in our minds to explain our lives, both to ourselves and others.

Not everyone agrees

The field of happiness economics has not achieved consensus on this issue, which is at least partly due to the fact that the survey data on which such conclusions are based use different definitions of happiness. Unless a survey specifically asks a respondent to consider their day-to-day emotional wellbeing, most people will answer a question about their happiness based on life satisfaction.

This may explain why a large study published last year contradicted the theory of satiation to argue that:

  1. People in rich countries (GDP per capita at rates of over US$15K) do on average report higher happiness and life satisfaction scores than those who live in countries with lower GDP per capita
  2. Within individual countries, average levels of happiness and life satisfaction do indeed increase (according to available survey evidence) in direct correlation to income, without a point of satiation. In fact, the study identified no point of satiation at all. In other words, they concluded that your happiness will continue to increase directly in line with your income, however high that goes.

(See here for the full article).

The thing is, I don’t believe a word of it.

Consider the case of Chinese billionaires

These guys should be among the happiest people on the planet, right?

Actually, they’re more likely to commit suicide than the average Chinese person.

 (Between 2008 and 2010, 24% of billionaires in China took their own lives).

"Suicide among millionaires and billionaires in China is a social problem, which shows more people cannot cope with the pressure they feel to maintain their wealth after they've become successful," said Hu of Fudan University.

"All those millionaires started their own businesses 20 or 30 years ago with a firm determination to make their lives better, which they've obviously achieved," he said. "Now, though, they find that their lives are too stressful and that it is difficult to enjoy themselves in the way they had wanted.”

(Source: The Economic Times - here)

So what?

Mankind has evolved hard-wiring that enables us to adapt, rapidly, to new circumstances. The very nature of our in-built reward system is to provide an instant reward (a release of dopamine in the brain) for positive behaviour, which then dissipates in order to incentivise a replication of that behaviour.

When we receive a pay rise, or buy a new dress or gadget we receive a happiness fillip. But we quickly get used to the new thing, or situation, and before we know it, our happiness is back to its regular baseline level.

Think about the last time you received a pay rise. How excited did you feel then and how excited do you feel about it now?

Often when someone is promoted they will identify a number they think they will receive in their minds and adapt to that. This is unlikely to be a route to satisfaction. Adapting to an imaginary number carries the risk that you will be disappointed if you actually receive less than you adapted to. Bosses and HR departments should always provide details of the pay rise when they inform employees that they are being promoted!

All this suggests that, no matter, what we earn, or what we buy, we will never be satisfied. We are hard-wired not to be satisfied for long. Does it make sense to chase happiness through a money-driven career or to seek something more fulfilling?

The other aspect is what we need to sacrifice to keep climbing the career pole. We earn more when our jobs become more serious and, as they become more serious, the demands on our time and our stress increase. How much do you have to earn to justify spending the best years of your life working through the weekend or until 10pm every night?

More money improves our life conditions and, the evidence suggests, our satisfaction with how our lives are going. But money can not deliver peace of mind and will not necessarily increase our happiness and enjoyment of our time, as it happens.


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