The debate about how important money is to our happiness is likely to continue for some time yet.

It is being waged at the extremes between those, like the free trade/free society Institute of Economic Affairs, who say money is absolutely essential to our basic happiness no matter how rich we get,  and those who insist that it has little to do with our real happiness (like Manoj Singh in the film ‘Happy‘  beaming out his happiness from the centre of his family in the slum he lives after his 12-14 hours pulling a rickshaw around Calcutta).  Still others continue to tell us that the desire for money actually makes us unhappy, repeated through the many variations of the ‘Money Grabber Ends In Misery’ story we have told each other since ancient times, like in this 1953 cartoon of the Greek myth, King Midas and the Golden Touch.

Meanwhile what can the rest of us understand about money and its importance to our happiness?

The belief that Happiness Doesn’t Increase With Growing Wealth of Nations has been gaining authority since 1974 when Richard Easterlin devised his Paradox that says although people in richer countries tend to be happier on average, as a country gets richer its inhabitants don’t necessarily become happier.  The just published UN World Happiness Report, 2012 endorses the Easterlin Paradox, concluding that money plays an decreasingly part in our happiness as nations become wealthier, but this is in no way straightforward.  One of the many virtues of this report (it really is worth the hefty read it asks for) is that its writers embrace and integrate the complexity and inconsistencies in this question and presents us with a money<->happiness interrelationship, rather than dogmatic one directional causality of money does/doesn’t lead to happiness:

Both external and personal features determine well-being.   Some of the important external factors include income, work, community and governance, and values and religion.  More “personal” factors include mental and physical health, family experience, education, gender, and age.  Many of these factors have a two-way interaction with happiness – physical health may improve happiness, while happiness improves physical health.  An analysis of all these factors strikingly shows that while absolute income is important in poor countries, in richer countries comparative income is probably the most important.  Many other variables have a more powerful effect on happiness, including social trust, quality of work, and freedom of choice and political participation. 

So in all likelihood the relationship between money and happiness is too complex and particular to different people at different times to be ever finally, completely or universally pinned down. But some consensus seems to be forming that says yes, a certain amount of money is necessary to our basic well-being and money can make a huge difference to our happiness when we have enough of it to not have to worry about it.  But after a certain level it seems that more money brings us very little if any extra happiness.  Daniel Kahneman’s US study suggests £50k is supposed to be the optimum amount we need to be happy: The Price of Happiness? £50,000.   “More money does not necessarily buy more happiness,” Kahneman says. “But less money is associated with emotional pain.”

For those of us who have not yet reached this magic £50k income level (and that is at least 90% of us in Britain) , there is the problem that chasing after money tends to drain our happiness and makes it harder for us to notice and appreciate and enjoy the non-material parts of our lives that can make us happy:  our relationships, work and activities we love doing, time enjoying being alive and in the world, and giving to other people or to something we believe in.

The problem with our chase after money and expecting it to bring us happiness is that it is not an end in itself:  it surely cannot be the vision of happily sitting in our counting house fingering our gold that drives us out of bed again and on, on, on in the frantic scramble to make our way our way in the world.  ‘A personal goal that has little genuine and lasting value in and of itself, like striving for more money, praise, or rewards, can cause problems, as Jessica Pryce-Jones says in Happiness At Work: Maximising Your Psychological Capital For Success.  ‘The big issue with this type of goal is working out when enough is enough because they are not ends in and of themselves.  What’s worse is that most of these goals depend on other people and what they choose to give you, and so they are much harder to control or influence.  Maybe the main problem with the ‘> money = > happiness’ equation is that it is to a very large degree outside our scope of influence, especially those 90%+ of us who failed to get ourselves into banking when we were young and possible enough.

Pryce-Jones and her researchers looked specifically at the links between money and happiness at work and found that it makes even less of a contribution to our happiness at work than it does in the rest of our lives:

We wanted to investigate money, it’s effects on work and motivation.  Our aim was to find out that if, as popular psychology dictates, money doesn’t matter, why do so many people behave as though it does?  And why do so many organisations seem to believe it too?

Our findings showed that pay is not associated with the essential Happiness At Work elements of motivation, interest in your work, having an impact on the world, achieving your potential, or recognition.  In fact it’s negatively associated with it, meaning you actively don’t want money as a reward for being motivated or for being interested in your work.  Nor, according to our statistics, is it linked to any important outcomes like productivity, time off sick, energy, or intention to quit.

Money doesn’t make you happier at work because work isn’t where you get to spend it – or enjoy its effects.  Outside work money starts to matter more because that’s where you’re starting to use it.  And that’s backed up by our research, which shows that your overall happiness with life is significantly associated with money.  Not having enough money is an enormous pressure, while having it enables you to make greater choices in what you do.

To sum up the money question, it does matter – but not at work.

What do you think?