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The Limitations of Money on Happiness

Anthony Childers

Grand Rapids Community College

Mr. Henders

General Psychology

October 10, 2022

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The phrase, "Money can't buy happiness'' has been beaten over the head of

generations of people to the point where it seems almost as if it is common sense. But,

the amount of truth that lies in that age-old sentimentality has garnered interest in the

world of psychology and economics. However, a consensus can be met on the topic:

money is a standard tool for happiness, but not the source; limitations will always be

present.

Wealth is attributed to many beneficial aspects such as access to better

education, health, mental care, and the environment; issues with a lack of money have

parallel opposites. Although there is no doubt that wealth in life is a positive aspect and

poverty can leave people miserable, wealth cannot be significantly attributed to better

emotional well-being. According to the American psychologist, Edward Diener, Windfall

increases in income can lead to a feeling of higher well-being but also stress. Income

change for the average person does not increase one's feeling of well-being, nor does a

decrease in income necessarily lead to lower subjective well-being (SWB) (Diener,

2002). What's more, an interesting correlation can be made between Subjective

Well-Being and income. Instead of looking at income as a factor in determining

Subjective Well-Being, SWB can be looked at as the factor in determining income.

People from happier backgrounds are more likely to earn more in adulthood than those

with a “less cheerful disposition.” This suggests the correlation between income and

subjective well-being is likely due to the tendency of happier individuals to have

higher-paying jobs than unhappy individuals.

A multilevel analysis performed by Schyns in 2000 discovered the difference in

subjective well-being between people depending on individual income was only 2.5%.

This finding means a high percentage of social well-being was dependent on other
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factors besides individual income. Research performed by Kahneman, Krueger,

Schkade, Schwarz, & Stone backs those findings in their research which found that

upper-income people and lower-income people spend around the same time engaging

and enjoyable activities daily despite upper-income people experiencing more stress. A

source of distress may lie in consumerism. Consumerism is often used without the goal

of self-pleasure but with the maintenance of social relationships. This fixation can lead

to creating a short increase and or lower levels of subjective well-being.

In the discussion of money's influence on happiness, a hypothesis aims to

explain the reasoning behind increasing the incomes of the average person may not

raise their happiness. The rank hypothesis suggests that people care about how their

income compares to others within a socially constructed comparison group. Evidence

for this can be found in a 2008 study with 16,000 British workers' satisfaction depended

on the ordinal rank of an individual's ways in the workplace. Being in the presence of

people richer than one's self often is harmful to one's well-being. Subjective well-being

depends on an individual’s view of their utility vis-a-vis their subjective income rank.

The limitations and relationship between income and subjective well-being are

further explored by social psychologists and behavioral scientists Kudrna and Kshlev’s

research on the matter. Those in poverty or from 3rd world countries have the highest

link with happiness from a higher income than people with a significantly higher

income. In North America, additional annual income above $75,000 is not associated

with a positive effect on daily emotional well-being. Not only does the increase in

income not contribute to high emotional well-being, but it may also have negative

effects depending on how income is measured and analyzed (Kudrna and Kshlev, 2002).

Looking at lottery winners, a trend can be observed that best illustrates that maximized
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income does not equate to high emotional well-being. Often, lottery winners will quit

their jobs in new neighborhoods leading to a loss of old friends and family.

Intrapersonal friction was also found by the researchers as a common result of the

sudden increase in wealth due to family and friends wanting a piece of the earnings from

the recipients.

Often when discussing money's effect on subjective well-being, there isn't

enough distinguishment between two concepts that are often associated: emotional

well-being, Which is the quality of an individual's everyday experience and emotions in

life that either make it pleasant or unpleasant. Life evaluation deals with a person's

thoughts about his or her life. Surveys on subjective well-being have traditionally

prioritized life evaluation. This issue gives the appearance that there is a strong

correlation between money and happiness (Daniel K. & Angus D.). As reported by Israeli

American psychologist Daniel Kahneman, their results showed higher income doesn't

lead to the relief of unhappiness or stress but works to improve an individual's life

evaluations. Income has a better relationship with satisfaction than happiness.

The lack of money or income can make someone completely miserable, however,

no amount of money can automatically bring some a stable sense of happiness. Whether

it's that work bonus or hitting the lottery, for the typical person, a great deal of

subjective well-being cannot be achieved monetarily. The reason we might perceive the

causation: money equals happiness, has less to do with the influence of wealth on the

individual, but with the person's personality influence on said person's wealth.

Truly, money alone with never bring any person long-term happiness of the flaw

in design by human nature. As people, we have goals and expectations for those goals.

once we accomplish a goal and expectations for that goal are met, we quickly develop
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new goals and expectations. The influence from our social settings, the people we talk to,

the lives we see on their social media, and more, all significantly impact the height of

those expectations; to our perception of our social ranks. The envy and desire to quickly

accomplished these nonpersonal goals directly influence emotional well-being, for the

most part, in a negative manner. Money has a higher correlation with our subjective

well-being when it is spent on experiences and other people. Higher income and a high

possession of wealth are not synonymous with a happier life but can be used as a tool

toward the path to one.

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References

Ahuvia, A. (2008). If money doesn’t make us happy, why do we act as if it does? Journal of

Economic Psychology, 29(4), 491–507. https://doi.org/10.1016/j.joep.2007.11.005

Boyce, C. J., Brown, G. D. A., & Moore, S. C. (2010). Money and happiness. Psychological

Science, 21(4), 471–475. https://doi.org/10.1177/0956797610362671

Diener, E., & Biswas-Diener, R. (2009). Will money increase subjective well-being?: A

literature review and guide to needed research. Social Indicators Research Series, 119–154.

https://doi.org/10.1007/978-90-481-2350-6_6

Kahneman, D., & Deaton, A. (2010). High income improves evaluation of life but not

emotional well-being. Proceedings of the National Academy of Sciences, 107(38), 16489–16493.

https://doi.org/10.1073/pnas.1011492107

Kudrna, L., & Kushlev, K. (2021). Money does not always buy happiness, but are richer

people less happy in their daily lives? it depends on how you analyze income.

https://doi.org/10.31234/osf.io/4jvh5