Don’t care too much for money?

Poverty can have long-lasting psychological effects, as I outlined in the January 2020 issue. But for people who live above the poverty line, expectations about how much money we should have or need, as well as decisions about what to spend our money on, and what to save for the future, can all affect psychological wellbeing, too. However, some well-worn ideas about this are being challenged, as we explore here…

Is it true that money can't buy you happiness?

Received wisdom is that it can't – at least, so long as your income already covers your basic needs plus a few conveniences, such as a car, perhaps. But according to a recent paper in PNAS, this is not correct. Matthew A. Killingsworth at the University of Pennsylvania, US, analysed data from more than 33,000 employed adults in the US, who had been asked to report on their own wellbeing at random timepoints via a smart phone app. Contrary to the findings of some highly influential earlier work, the analysis of over 1.7 million reports found no evidence for a 'wellbeing plateau' above an income level of $75,000 a year. Instead, Killingsworth found that wellbeing rose with income, with incomes in this study ranging from $15,000 a year to over $480,000. 'This suggests that higher incomes may still have potential to improve people's day-to-day wellbeing,' even in wealthy countries, he writes.

However, it's worth stressing that the data shows that wellbeing increases by a similar amount every time income is doubled – so an increase of $30,000 to $60,000, for example, is associated with a much bigger rise in happiness than an increase of $120,000 to $150,000.

What should you buy to maximise happiness?

Not more things, according to most research – but there's a caveat to this, which we'll get to shortly.

Certainly, there's plenty of evidence that buying experiences rather than possessions makes for greater wellbeing. For example, in 2020, a team that included Killingsworth but which was led by Amit Kumar at the University of Texas, Austin reported a study of 2635 US-based adults, who received regular texts during the day asking about their current emotions and any purchases. The researchers found that people were happier when spending on experiences, such as attending a sporting event or eating at a restaurant, than when buying goods that cost the same amount, such as jewellery or clothing.

Another study, led by Hal Hershfield and published in Social Psychological and Personality Science, reported that although most people say they would choose to have more money over more time, participants who chose money reported being happier (the participants' household income and free time were taken into account in this analysis). The team did also find that happier people are more likely to choose more time vs. more money. But their analysis suggests that the effect does work in both directions, with a prioritization of time vs. money and greater happiness boosting each other. (The participants in this study were thousands of Americans representing a range of ages, income levels and occupations.)

However, there is also evidence that buying experiences and time really only makes you happier than buying objects if you're already reasonably well-off, compared with those around you. As we reported on the Digest in 2018, research (yet again in the US) has shown that less well-off people get just the same – if not more – happiness from buying objects.

How does income disparity affect happiness?

People living in areas where incomes are more similar tend to report greater wellbeing – and this holds not just for overall high-income regions, such as Scandinavian countries, but regions where money isn't used much at all, such as the Solomon Islands.

There's plenty of research finding that it's not so much how much we earn (above a basic level) but how much we earn compared with those around us that affects wellbeing. In one recent study of this, Zonghuo Yu and Fei Wang analysed decades worth of data from the US and also several western European countries, including the UK. They found that, in Europe especially, rising levels of income inequality were associated with higher levels of happiness – up to a critical point. Beyond that point, happiness dropped.

The researchers think that limited inequality is encouraging – people see that some social mobility is possible and expect that they might achieve it themselves. However, when income inequality becomes too high, 'more aspiring individuals may replace their upward mobility dream with despair and feel jealous of the rich'.

'Too high' was notably higher for the US than for Europe. The researchers think this could be because even though there is lower social mobility and also greater income inequality in the US compared with western Europe, Americans are greater believers in the possibility of social mobility.

One last note on income inequality: highlighting it can of course be important. Certainly, there's work finding that visible reminders of inequality can make disadvantaged people more likely to want to do something about it.

What about giving money away…

Throughout human history and across cultures, humans have helped one another in times of need – that, at least, is the message from the influential Human Generosity Project. Anthropological studies of a wide range of communities suggest that we are generous by nature. Though this research has focused on generosity within communities, we are of course also motivated to give anonymously, in the form of charitable donations. Studies in this field have found that giving boosts happiness, and also that happier people give more, creating a virtuous spiral of increasing benefits.

Other studies have investigated the factors that influence our decisions to give to charities. A 2019 paper from Matthew Sisco and Elke Weber in Nature Communications, which analysed millions of dollars of donations given via the GoFundMe Platform, found that donors gave significantly more to people who shared their surname. Also, men and women donated more at times when donors of the opposite sex were visible on the screen.

That same year, we reported on a study led by Valerio Capraro finding that simple 'moral nudges' encourage people to donate much more to charity. Nudging people to reflect on what was the morally 'right thing' to do increased actual donations by close to half.

…And keeping hold of it?

You really want to save for a deposit on a flat, or for your retirement – but that ridiculously expensive dress, or shirt, or holiday is just so appealing. Most of us have experienced feelings like this. It is much harder to put money away for the future than it is to spend it now. Finding ways to close the gap that we feel between our present and future selves should help, in theory. And a questionnaire that got participants in Portugal to think more about their own future ageing did prompt them to invest more in retirement funds, reports a 2018 study from Sibila Marques and colleagues in the Journal of Applied Social Psychology.

Other groups have looked at different practical ways to encourage people to save. In 2020, a team led by Hal Hershfield at UCLA reported a study of thousands of new users of a financial technology app. They found that suggesting smaller, more regular deposits vs. larger, less regular ones encouraged less well-off people to save. In this US study, three times as many people in the highest, compared with the lowest, income bracket signed up to make a $150 deposit each month. When this was framed as $5 per day instead, the difference in participation was eliminated (even though the total savings for each individual were, of course, the same).

There's also evidence that some personality traits put you at greater risk of financial hardship and even bankruptcy. Perhaps surprisingly, one of these traits is agreeableness. The reason, according to a 2018 report in the Journal of Personality and Social Psychology, is that agreeable people value money less, and so are more likely to mismanage their own. 'The relationship was much stronger for lower-income individuals, who don't have the financial means to compensate for the detrimental impact of their agreeable personality,' commented co-author Joe Gladstone at UCL.