Maybe money does buy happiness, after all — especially if you can afford more of it than your pals.
That’s according to the findings of a recent working paper distributed by the National Bureau of Economic Research. The paper, titled “Keeping up with the Jansens: Causal Peer Effects on Household Spending, Beliefs and Happiness,” used a survey of Dutch households to determine whether believing you’re in better financial standing than your peers can impact your beliefs and behavior.
The most striking finding? Believing you earn more than your peers — whom researchers defined as people of similar age, education, and marital and homeownership status — actually makes you happier.
That impact was evident regardless of actual income, researchers said. In other words, it didn’t matter how much money respondents actually made, only how it compared with others’ earnings.
“When you realize your [relative] position is good, then you’re more happy,” Bernardo Candia, one of the paper’s co-authors and a Ph.D. candidate at the University of California, Berkeley, told MarketWatch. “It’s not about the absolute number.”
“People who thought they had higher relative incomes were less likely to believe that wealth inequalities across society are too large, and less supportive of trying to reduce them.”
Believing you’re more well-off has other impacts as well, researchers found: People who thought they had higher relative incomes were less likely to believe that wealth inequalities across society are too large, and less supportive of trying to reduce them.
From the archives (January 2022): Racial and economic inequality persists. Why do many people deny it?
On the other hand, people who believed they earned less were more likely to spend more on durable goods like cars or household appliances — possibly “trying to show off,” Candia said.
In that sense, the paper suggests that the pressure to “keep up with the Joneses” is a real one.
The findings do paint “a somewhat dismal outlook for society,” the researchers wrote. In a world where not everyone can be above average, the relationship between happiness and relative earnings suggests that there will always be people who are “more unhappy than is warranted by the level of their income,” the paper said.
“In a perfect world, you want everyone to be happy,” said Maarten van Rooij, another co-author of the paper and principal economist at the Amsterdam-based De Nederlandsche Bank. “But if we’re comparing ourselves, then not everyone can be perfectly happy in the end.”
Does money buy happiness?
Researchers have been trying for years to nail down the exact relationship between money and happiness.
In one 2010 study, psychologist Daniel Kahneman and economist Angus Deaton of Princeton University found that more money is associated with greater happiness only up until a point: $75,000 in annual income, or just about $100,000 in today’s dollars.
Just over a decade later, Matthew Killingsworth, a researcher at the University of Pennsylvania’s Wharton School of Business, published findings showing that the correlation between earnings and day-to-day well-being keeps going even as you climb the income ladder.
Last year, Kahneman and Killingsworth teamed up to publish new research showing that the correlation between financial health and overall happiness depends a good deal on how happy you are in the first place.
“In the simplest terms, this suggests that for most people larger incomes are associated with greater happiness,” Killingsworth said in a statement. “The exception is people who are financially well-off but unhappy. For instance, if you’re rich and miserable, more money won’t help. For everyone else, more money was associated with higher happiness to somewhat varying degrees.”
Some age groups may put an even higher price tag on contentment: In one November survey conducted by the Harris Poll and shared by the financial-services company Empower, millennials said they’d need a $525,000 salary to achieve financial happiness.
How does money affect your happiness? Let us know at [email protected]. One of our reporters might reach out to you to learn more.
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