In 1750, French philosopher Jean-Jacques Rousseau wrote “money can buy material things, but real happiness must be truly earned”. The phrase, now very common, has been simplified to “money can’t buy happiness”.
The adage is used to reinforce the idea that spending more money won’t make you content in life. Instead, we should focus on experiences that money can’t buy, such as time with family, because that’s what really makes us happy.
In reality, it’s a little more complicated than that. Numerous studies show that spending money can increase happiness and wellbeing, but it depends what you spend your wealth on.
Read on to learn how money could buy you happiness.
Earning more has been linked to a greater sense of wellbeing
As your earnings increase, you may find it easier to manage your regular expenses. You may also have more disposable income to contribute to savings and investments, purchase luxury items, or spend on valuable experiences such as travelling and enjoying quality time with your family.
This could mean that having more money improves your quality of life and you are better able to work towards long-term goals, and this may make you happier.
In fact, according to Psychology Today, a Swedish study of lottery winners found that they had greater life satisfaction and improved mental health and were more prepared for unexpected life events than those who hadn’t won the lottery.
More in-depth research into this topic aimed to find out whether earning more money would make you happier indefinitely, or if there was a limit.
According to Fortune, research published in 2010 found that happiness and wellbeing increased alongside income before reaching a plateau between $60,000 and $90,000 (around £48,000 and £72,000), after which earning more wouldn’t improve your outlook on life.
Yet, other studies have found that there is no such plateau, so the relationship between income and wellbeing is not so clear. Further studies found that the effect of increased earnings on your wellbeing depended on your personal situation.
For the unhappiest 20% of people, wellbeing increased in line with income until around $100,000 before plateauing. This is likely because issues that cause serious emotional distress, such as bereavement or relationship problems, can’t be solved by money.
Conversely, for the happiest 30% of people, wellbeing continued rising with income beyond $100,000.
So, despite the popular saying, it seems that building wealth generally does make you happier, even if it can’t solve some of life’s biggest problems.
However, accumulating wealth is only part of the story. You may also need to consider what you spend your money on and how this could influence your life.
Spending on material possessions and experiences can both increase feelings of happiness
In the past, research suggested that people gain more fulfilment from spending money on experiences rather than material possessions. In many situations, that might be true. For example, you may enjoy sharing a meal with family members more than buying a new TV.
However, there is a potential downfall with the experience versus material possessions argument – because there is often a crossover between the two. A TV is a material possession, but it provides the experience of watching your favourite films or sharing movie nights with friends and family.
Additionally, the satisfaction you get from a purchase – and how long that happiness lasts – varies from person to person. For instance, if we consider the example above, a film buff who watches movies every night might get more long-term satisfaction from a new TV than they would a meal at a high-end restaurant.
As a result, you may find happiness in purchasing both material possessions and experiences, depending on the situation. More importantly, the value of a purchase depends on your personal relationship with the item or experience.
Understanding what’s important to you is key to improving your wellbeing
A recent study reported by Greater Good asked participants to choose a purchase they had made and rate the satisfaction they felt afterwards. They also considered whether the purchases supported the participants’ life goals.
The study identified two types of goals:
- Intrinsic goals – these are internally motivated and often involve relationships with others, personal growth and development, or interests we value.
- External goals – these are goals that other people have for us and include professional development or social status.
The findings of the study showed that, on average, people got more satisfaction from purchasing experiences than they did buying material possessions.
They also reported a greater improvement in wellbeing and viewed their purchases as more worthwhile if they aligned with their intrinsic goals. This was true of material purchases as well as experiential ones and aligning purchases with their goals was the biggest director of happiness.
This means that purchasing experiences over material possessions doesn’t necessarily equate to increased happiness. Instead, it’s important to focus on spending in ways that support your intrinsic goals, regardless of the nature of the purchase.
Goals-based financial planning could help you live a happier life
If you simply accumulate as much wealth as possible, you won’t necessarily be happier. You may find that financial security reduces stress and increased earnings improve your wellbeing, to some extent. But, as the research demonstrates, using your wealth to support life goals is the key to happiness.
That’s why, when creating a financial plan, it can be useful to consider your main priorities and goals in life first. This is where we can help; our independent financial advisers can create a goals-based financial plan that supports your overall wellbeing.
Get in touch
If you need support identifying your goals and building a financial plan to help you achieve them, we can guide you.
Email hello@fcadvice.co.uk or call 0333 241 9900.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
