An article from Norwegian University of Life Sciences (NMBU)

Happiness is having good finances and a nice neighbourhood. (Photo: Shuttersstock)
Happiness is having good finances and a nice neighbourhood. (Photo: Shuttersstock)

Does money make us happier?

It doesn't seem to matter whether you're rich or poor: more money makes us a bit happier, we compare ourselves to our neighbours, and the things that are near and dear to us count the most.

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Norwegian University of Life Sciences (NMBU)

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There's little question that having enough money - your absolute income - is important for people's well-being. Researchers across the globe have thoroughly documented that increased income increases happiness, and that the effect is greater for people whose initial income is low.

But when researchers from the Norwegian University of Life Sciences (NMBU) took a more comprehensive look at what makes people happy they came up with some surprising findings. One was that social comparison - how prosperous people feel in comparison with their neighbours - even matters to people in developing countries with relatively low incomes.

“We have this notion that people in developing countries care most about eating enough food, having a place to live, and meeting their most vital needs. Social comparison is something only the rich care about,” says Arild Angelsen, a professor at the Norwegian University of Life Sciences (NMBU). 

“The point is that the differences are not as great between poor and rich when it comes to subjective well-being,” Angelsen says. “We have often studied people in developing countries as though they belong to another category – another race – but it is largely the same mechanisms that apply. No matter where in the world they are, people compare themselves with their neighbours.”

Multi-year study

Facts on happiness research

The Poverty Environment Network (PEN) project does not investigate happiness but rather the environmental incomes of poor people, for example when they harvest firewood, lumber, wild food, fish, and other products directly from nature.

Angelsen was the project’s global coordinator, where around 50 PhD candidates and researchers from a number of countries participated. The results have recently been published in the journal World Development.

The researchers used supplementary questions to study other topics and connect them to the comprehensive data they have on household income.

Around 8 000 households in 24 developing countries in Asia, Africa, and Latin America were surveyed. Researchers collected detailed socio-economic data from 333 villages.

The participants were asked a number of questions about income and wealth and also about their life satisfaction, subjective well-being, and happiness. They also provided information on their household finances compared both with others in the village and with their own situation five years before.

What the researchers found was that many of the same mechanisms were operative in both industrialized and developing countries. Social comparison and consumer pressure affected the satisfaction of poor people as well, and the difference was not as great in this area as many claim.

“But income is also important,” Angelsen adds.

“People in rich countries are on the whole happier than in poor countries. In economics we speak of the ‘diminishing marginal utility’ of money, meaning that one euro or dollar extra is more important to a poor person than to a rich person," he said. "Economic growth – that is, an increase in average income – is therefore greatly important in poor countries, and the saying ‘poor but happy’ is not empirically founded.”

Can happiness be measured?

“A question we asked in our survey was ‘How satisfied are you with your life during the past 12 months?’ The reply you receive is highly subjective, of course, but merely because something is subjective does not mean it cannot be measured,” says Angelsen.

He points out that much of the literature uses “subjective well-being” rather than “happiness”, so happiness is more than only feelings. Moreover, self-reported happiness tallies well with how others perceive you.

One of the most important findings in happiness research is what is known as the Easterlin paradox. If you compare people with differing incomes from a given country, richer people are happier than poor people. However, the average citizen in Western countries has not become happier over the past 50 years even though the average income has increased many times over. Therein lies the paradox: it is not absolute but relative income that counts.

“In addition to social comparison, one explanation of this paradox is what is called the hedonic treadmill,” Angelsen explains.

“For example, when your wages go up, you experience an immediate increase in happiness, but after a short while you become used to the change. Some studies show that as soon as a year after a wage increase, the feeling of happiness has been halved. This means that we adapt to the ‘happiness’ and adjust our demands and expectations.”

Happiness – a societal responsibility

In poor and rich countries alike, there is a tendency to view happiness as a personal responsibility rather than as the responsibility of the authorities.

“I believe this is the wrong starting point,” says Angelsen.

“The authorities should make conditions right for citizens to be happy. It is therefore important to see what creates happiness. Happiness research offers many answers to what contributes to this: secure work, low crime rates, good family and social relations, and participation in voluntary work are important factors that create happiness.”

Many of these factors are found in the survey. It shows that good social relations and trust are key indicators of happiness, while illness and the loss of possessions (theft is common in many of the regions surveyed) have the opposite effect.

Experience from fieldwork

Angelsen carried out fieldwork in the Indonesian countryside for his doctoral dissertation in the 1990s. Many there practised a type of slash-and-burn agriculture, where for several months each year they would move to and live on a small rice field several kilometres from their village.

At the time, Angelsen asked his informants whether it felt lonely to live there. The reply, contrary to what you might think, was that many enjoyed it. Out in the rice field there was less pressure to buy things during the weekly village market, nor did the kids nag their parents to buy sweets. This pressure to purchase things and keep up with the Joneses is not exclusive to rich countries.

“Many studies from Western countries have found a U-shaped connection between happiness and age, with the end of the 40s as the low point. But we found no such connection. Perhaps mid-life crises are a Western phenomenon?” the economics professor wonders.

The findings have been published in the Journal of Happiness Studies.

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