Money does make you happy

The old adage that money can't buy happiness is a lie: money can and does make people happy. But that's bad news for many of us, as we're about to become a lot more miserable.

I've got some really depressing news. It seems that money really can make you happy.

For years now those of us who aren't quite as rich as we'd like to be have been able to comfort ourselves by reading and re-reading research published by economist Richard Easterlin in 1974. This theorised with considerable statistical back up that absolute income has no bearing on happiness levels. People in poorer societies are happier when they can afford basic necessities than when they cannot (I imagine that bit was pretty obvious from the start), but beyond that further gains made little difference.

The research, known as the Easterlin Paradox, "quickly became a social science classic", says The New York Times. "It tapped into a near spiritual human instinct to believe that money can't buy happiness", allowing anyone struggling financially to believe that as long as they had a roof over their head and enough to eat, they had just as much of a chance of real happiness as the super-yacht-owning classes.

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Unfortunately, it now turns out that might not be the case after all. New research from economists Betsy Stevenson and Justin Wolfers suggests that absolute income does matter a lot. Easterlin's most famous example was of the Japanese. His study showed that despite huge economic growth, the Japanese considered themselves to be slightly less happy in the 1970s than in the late 1950s. Wolfers and Stevenson say this isn't quite as it seems: the Japanese were asked about happiness regularly, but over the years the phrasing of the question changed.

If you only look at the years when they were asked the same question, the share of people calling themselves completely satisfied did rise. The two also point to US data showing that 90% of those living in households making over $250,000 a year called themselves "very happy", while only 42% of those making less than $30,000 felt the same.

There's no final conclusion to this one yet. Easterlin has come up with what The New York Times calls a "spirited response" but the idea that the more money you have the happier you are does make sense: money means less worry and more free time; it means better health care and a longer life; and it means if you manage it right more time spent with family and friends.

Bad news then that many of us are about to have a lot less of it. There's been much talk about how Britain will be just fine because unemployment is low. But that's not a state of affairs that is going to last much longer. Word of new job losses in the City reaches us every day. Estate agents are shutting down: the Home Builders Federation has just warned that it expects tens of thousands of jobs to be lost in the sector. And with the retail sector slowing it can't be long before jobs start going there too.

Those of us who stay in work won't be feeling very happy either. Not only are all our costs going up, from food to mortgage rates, but our taxes soon will too: include Northern Rock and UK debt is now 43% of GDP rather more than Gordon Brown's one time limit of 40%.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.