How Much Money Do You Need To Be Happy?

Money alone may not make you happy - but it certainly makes your misery more comfortable.

In fact whilst it is true to say that money alone doesn't make you happier, there is a correlation between the amount of money you have and how happy you are - although the relationship is not straight forward.

In statistical or economic terms, I'd say the relationship is what they call 'logarithmic'. By that I mean to get 10 units of happiness, you might have to raise your income from £20 to £30 thousand pounds. But a further £10,000 of income won't increase your happiness by another10 units Starting at the new higher level of happiness, you now have to add twice as much income to get the same happy post.

There are diminishing returns - like getting drunk. The best sip of cold lager is the one just before you take it. It's the anticipation of whats to come which is really fantastic. The 40th sip of lager hardly makes any difference - and the 100th may be positively horrible.

There is also evidence to suggest you can't keep getting happier, the more you earn. There is a point at which the happy/money relationship breaks down. Jan-Emmanuel De Neve, Professor of Economics and Behavioural Science at the University of Oxford, suggests there is "a plateau" above which people "would no longer detect a statistically significant relationship between further money and life satisfaction." That plateau might be around the £120,000 - £15,000 level.

Director of the charity Action for Happiness, Mark Williamson, identifies a number of these quality-of-life factors. They include cultivating good relationships in the community (family, friends, work colleagues), deriving meaning from being part of something "bigger than ourselves" which can happen through giving in its various forms.

In fact the charity identifies 10 key drivers of happiness, of which giving stuff away is one of the biggest factors, not getting stuff.

One of the biggest drivers of happiness is about the relationships you have. Action for Happiness says that:

"Studies show people with strong relationships are happier, healthier and may even live longer. Having a network of social connections or high levels of social support even appears to increase our immunity to infection, lower our risk of heart disease and reduce mental decline as we get older."

The Politics of Happiness

Nor is this just an interesting sideline topic. In the midst of an election, there is much talk of spending and taxes, but no one has talked of happiness. Our government spending, our own incomes and our policy choices are all proxies for achieving personal and community happiness, it is curious therefore that there isn't a happiness platform being discussed when the whole nation is deciding what kind of country we want to have.

That might be because it isn't as easy to measure as GDP but it might suprise you to know that the Office for National Statistics does actually measure it.

They say that:

"Measures of a country's progress have often tended to focus on economic growth, usually measured by Gross Domestic Product (GDP). However, GDP omits important elements affecting the well-being of society and the environment, and the way these impacts are distributed. So, to complement traditional economic statistics, we have been developing new, and improving existing, measures of national progress, prosperity, and well-being."

The latest well-being report says that the percentage of people reporting low satisfaction with their lives in the UK, has increased to 5.8% in the five years to October to December 2023.

Buying Trust

Professor De Neve is one of the authors of the United Nation's World Happiness Report, which consistently puts Nordic countries at the top of the rankings. He cites strong social networks, welfare states that bring "a sort of psychological security" and trust in the government tax plans among the reasons for this.

A more equal society is another major factor, the professor says. "The levels of inequality are much lower than they are in more in economies like our own here in the UK. All of that means that, in our report, the average wellbeing or life satisfaction of somebody in Finland or Denmark is much closer to [a score of] eight. Whereas in the United Kingdom it's sort of around seven."

In the UK there has been a huge rise in the sale of private health policies over the past few years. I think that may be because people don't trust the NHS to supply them with the care they need when they need it.

The financial swap with money for medical services, doesn't bring the same level of happiness as a social medical system, such as the NHS, which people trust.

If you feel the police, schools, hospitals, and politicians do their job well and will be there to supply you with what you need, when you need it, you are actually happier than f you just bought the same level of care. That's because in the social transaction of looking after eachother - there is an added, none market based benefit, that the consumer gains. We think that people are there for us, care for us, will look after us - and that may be one of the biggest contributers to happiness once people have reached a certain level of material comfort.

Loss Aversion

Loss aversion, as it is known in behavioural economics, has been measured across various studies. Professor De Neve says "Wellbeing is twice as sensitive to the loss of income or purchasing power versus an equivalent gain in income."

In other words, we hate losing stuff much more than we like gaining stuff. Which may. be partly why we hate paying taxes even if we realise they will fund services which we like receiving.

It might also mean - you might get more joy from paying odff a debt - reducing a mortgage for instance, than getting a similar increase in your salary.

Do tell me what you think?

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