Does your income influence your happiness? In a word yes… but what you do with it matters a lot. Here’s why money is so important to us and how to spend it more effectively.
Income and Happiness
Does your income impact your happiness? Early research into this suggested that after baseline levels of needs were met (e.g. food, shelter, water, feeling safe), there was no correlation between income and happiness. This was supposed to be liberating: if you read the research and believed it, then you knew that making more money wouldn’t make a difference and you could finally be free to follow your passions knowing you would be happier than ever. You could leave corporate America to work on a farm feeding underprivileged children and smile at the positive impact you were making in the world.
Except this didn’t happen. People largely read the research but didn’t entirely believe it. We didn’t go out and change our lives because the research doesn’t align with our feelings or with our practical experience. Yes, research might suggest whatever it wants, but we know that having a higher income feels better than having a lower one.
Well, new research has come out and guess what? Having a higher income does correlate with being happier. Our feelings have been validated… and yet, we all know people who are poor who are happier than those who are much wealthier. Many of us also have had the experience of making much more than we did when we were younger, yet still feel a long way away from feeling financially “satisfied.” So what is going on here?
The first issue is adaptation. Human beings are unbelievably good at adapting to their circumstances. One of the most interesting studies on this topic found that people who had recently been paralyzed in a car accident actually reported more positive emotion than negative just 8 weeks after the event and were just under average happiness levels after about a year. In other words, even after what would surely be a devastating event, you are likely to adapt well.
Naturally, the same adaptation occurs with increased income. The comfort that goes with having more just becomes your new normal. The luxury car, the house, the jewelry… all of it just becomes part of your normal, day-to-day life. We have all evolved to seek out and pay attention to changes in our environment, so while we may get a spike of happiness from purchasing that new car, purse or watch, it quickly becomes part of our normal existence and we therefore need to purchase something else to feel good again; a process known as the “hedonic treadmill.”
The second issue with happiness and income is around social relativity. We all have reference groups that we compare ourselves to: our neighbors, our colleagues, our former classmates, etc. We derive happiness as we do well relative to these people because it confers status upon us. The challenge is that our reference groups change over time as we become more financially successful. In my case, I’ve done quite well for myself relative to my peers from my public high school in Bangor, Maine. I’ve been moderately successful next to my peers from Bowdoin College (an elite private school), and I’ve done pretty poorly relative to my classmates from Harvard Business School. The reference group keeps shifting as our lives evolve.
Let me share an experience I had that will hopefully bring this point home. I was in my sister’s home in a wealthy Denver suburb reading a couple magazines to kill time. The first magazine I read was National Geographic. As I read the magazine and the stories of people in our world who struggle to survive I felt extraordinarily blessed, privileged, and frankly, lucky.
After I finished the magazine I picked up the next one in the stack: Architectural Digest. After flipping through the pages advertising residences starting at $25M I felt… poor. What happened to me represents a change in reference groups that occurred in a matter of minutes, and while I was certainly aware of the shift in my emotions that were going on in that moment, I couldn’t help but find it disturbing how I had been so easily influenced.
The key to solving the issues of adaptation and social relativity is to stop looking around to gauge your success, but rather to look at how far you have come along your own personal journey. We all need to look behind us for how we have grown and developed rather than look around us for what we lack. If I look at how far I have come, then I can look at myself fondly. If I look at my comparably talented former colleague who went on to make tens of millions of dollars, I feel like a failure. The power is in my ability to choose where I focus.
So how should you think about this relative to your own personal goals and how you define success? I would encourage you not to define your success by the acquisition of things. Research by Ed Diener has found that the more materialistic you are, the less happy you will be, regardless of your income. In other words, stop focusing on buying stuff. Instead focus on acquiring experiences.
Imagine planning a vacation for 6 months from now; let’s say a big vacation, like a safari in Africa with your family. Research has found that you will get increased happiness from the point of booking your vacation forward as you anticipate the trip. In addition, you will have the amazing moments that really matter with your family while you are there, and you will get a happiness boost after the vacation by remembering your trip fondly. In other words, an experience is not something you adapt to, but rather something you savor.
So, as you think about your definition of success, I encourage you to review the things you want to purchase in the future (the luxury car, the designer handbag, etc) and ask yourself if it will create experiences that you will remember fondly. Some cars will (for example the family truckster that you take the kids across the country in or the sports car that you take to the track occasionally), others will not.
The key is that you look to use your wealth in ways that enhance the richness of your experiences rather than ways that allow you to experience richness. This focus on unforgettable moments is what will ultimately help drive your long-term happiness.