What They Don't Teach You About Money & Happiness

Does money buy happiness? Can more money make us happier? The answer to these questions is: Yes.

. . And no.

It depends really. In this video I'll examine the relationship between money and happiness. And hopefully you'll be able to answer those questions for yourself.

A lot of people go through life chasing money. And it makes perfect sense why. Money is what's needed to provide us with food, clothing, medical care, and a roof over our heads.

If you don't have any money, you're unable to fulfill those basic needs. And when we don't have those essentials sorted out, we probably won't feel too happy. That is why not having any money is a great predictor of unhappiness.

So in this case, getting our hands on some money will definitely bring us joy, as it would allow us to buy the necessities for a normal life. Now, you don't have to be living on the streets, for money to make you happier. Living paycheck to paycheck, and constantly worrying if you're going to be able to pay your bills and make it through the month, has been shown to cause a lot of stress.

Also being thousands of dollars in debt, and not knowing how you'll pay it off, has been linked to depression, anxiety, hopelessness and a lower life evaluation. Money, would again, make you happier in this case, as there would be one less thing to constantly worry about. A huge mental burden would lift and you would have peace of mind.

But when it comes to income, how much money should someone be making in order to maximize their happiness? In most cases someone who makes $50,000 per year, will be happier than someone who makes $25,000. Therefore it would make sense to assume that $100,000 per year is going to make them even happier, right?

Well not quite. Above a certain point, making more money doesn't equal more happiness. Someone who makes $100,000 per year, isn't much happier than the person who makes $50,000.

Back in 2010, a study published by Daniel Kahneman, had shown that in North America, making more than $75,000 per year, didn't improve day-to-day happiness. Money certainly helps with overall well-being up to a certain point, but once you're sitting comfortably in middle-class, more money probably won't make your average day any happier. Of course it has to be noted that 75,000 is the average number and depending on where you live, this number will be higher or lower.

If you live somewhere expensive, such as San Francisco, more money will be needed to satisfy your needs. But if you live somewhere much cheaper, making $30,000 could already be enough. Another thing that you shouldn't forget is that this study was done in 2010, and the dollar has lost some of its value due to inflation.

So as more time passes, this number will only get higher and higher. *** $75,000 in 2010 is equal to $88,500 in 2020 *** Now the same study found that while making more than $75,000 annually won't bring you any additional day-to-day happiness, it does bring higher life evaluation. This means that when people are reflecting on their lives, those who manage to make more money tend to be more satisfied with how their life has turned out.

Even past the $75,000 mark. And one of the reasons for this might be due to social comparison. Play along with me here for a minute.

Let's say you've applied for a job at Better Than Yesterday Incorporated. They have 3 different positions you could fill, positions A, B and C, and all of them come with different salaries. In position A, you would be making $40,000 annually, while your colleagues would be making $20,000.

In position B, your salary would be $50,000 and everyone else around you would also be making that exact number. But in position C, you would earn $60,000, however everyone else in that department, would be making $120,000. In order to maximize your happiness, which salary would you pick?

If you were to choose position C, you would make a mistake. While you would be making the biggest amount of money, this choice would bring you the least amount of happiness. If you wanted to maximize your happiness, the correct choice would be A.

Relative to your colleagues, you would be doing better than them. When it comes to money or achievement, part of the satisfaction comes from the fact that not everyone can match you. It might sound petty, but it's just human nature.

We love to compare how we stack up relative to other people. Take for example getting a B on a test. If everyone else got a C or lower, you'd feel great, because compared to others, you did very well.

But if you got a B and everyone else got an A, you obviously wouldn't feel too happy, because everyone else did better, while you did the worst. Even if you got the exact same grade in both cases. How happy we are with the amount of money we earn, is relative to the amount of money people around us are making.

Of course, this also means that if someone is making $1 million per year, but all their friends are making $5 million, they could be quite unhappy with their earnings. In their mind, they could feel like "losers", because their peer group is doing better than them. Even if they're actually in the top 1% of earners.

However, nowadays with social media at our fingertips, we're not just comparing ourselves to our friends and colleagues anymore, we're comparing ourselves with the entire world. While other rich people could serve as an inspiration, they can also make us feel inferior. If that's the case for you, you might want to take a break from social media, as this type of comparison could be a major source of unhappiness.

Just something to keep in mind. Now when it comes to grades, the maximum you can attain is an A+, and there isn't anything higher. So if you attained that grade you'd feel pretty good.

But when it comes to money, there is no upper limit. You could always be earning more. For this exact reason, we're always going to want more money, no matter how much we're currently making.

When different individuals are asked about what their perfect salary would be, the answer is pretty much the same. It's always more than the amount they are currently making. Those who make $30,000 per year, would say that $50,000 would be their perfect income.

Whereas those who earn more than $100,000, say they would need $250,000 to be satisfied. And even if those individuals were to attain their desired salaries and wealth, their desires would only increase. When it comes to money, we're never really going to be quite satisfied.

But why do we feel like we always need just a little more? Well it's because of a concept called hedonic adaptation. Let's say you're currently making $30,000 per year, but then you get hired at another job that pays you $50,000.

How would you feel? Pretty good right? Now the mistake would be to assume that you're going to feel that way forever.

While your happiness would definitely spike up, it would only last a short time. Over the course of the next few months, you would get accustomed to this new income. Essentially your new wealth would become your new normal.

And you would need to get a raise, or a better paying job to feel happier again. Until of course, you get used to it again, just like before. Interestingly enough, a lot of people don't know that this type of adaptation will even take place.

Perhaps it's because it happens so gradually that we don't usually notice it. For example, we experience the same type of unnoticed adaptation with temperature. Imagine you're out on a hot summer's day.

But then you enter your air-conditioned house. The air feels very cold, compared to the heat outside. However, as you spend more time in the house, you get so accustomed to the air conditioning, that you don't even notice that it's there.

What was fresh and cold before, now feels like a normal temperature, because you've adapted to it. And the exact same thing happens when you acquire money or other material possessions. When you buy a new fancy sports car, sure, you'll feel great about it for a few weeks.

But that feeling of novelty will fade away. Your new car might be better than the last one, but you won't feel as excited about driving it, like you were on the first day. The same happens when you buy a bigger house.

You'll feel great about your purchase, until of course, this new house becomes your new normal and you start dreaming about an even bigger house, with a better view. Make no mistake, objectively you will live better. But you won't feel better about how you live.

Every single time, you will adapt and feel like you could use a slightly better car, a bigger house, and a little more money. Contrary to popular belief, money and material possessions don't bring us lots of happiness for a long time. But rather, they bring us a little happiness until we adapt and feel like we deserve better.

However, this sort of adaptation isn't negative. If you're not as fortunate in your life, adaptation is great. Imagine that you found yourself in a car accident, that confined you to a wheelchair for the rest of your life.

You would feel pretty horrible, right? Well not so fast. A classic study, compared the happiness levels of lottery winners and paraplegics.

Interestingly enough, 1 year after their life-changing events, their happiness levels were not that far apart. There is no doubt that if you were to ask the lottery winners how they felt at the moment they won, they would say that their happiness levels were off the charts. And if you were to ask those who were in the accident how they felt at that moment, you'd find out that their score would be as low as possible.

But as time passed, both the lottery winners and the paraplegics got used to their new circumstances. And their happiness returned to roughly the same point it was before their life-changing events. But make no mistake, the lottery winners were still happier than the accident victims, just not by as much as one would think.

So as you can see, if you're not as fortunate, adaptation is very useful. However, that same study found that those who win the lottery face a different problem. A lot of them now have a diminished ability to appreciate the small things in life.

Things like a freshly brewed coffee in the morning, or a lovely sunset, just aren't as enjoyable any longer. This happens because the lottery winners often rush to spend their money on the best things life has to offer. And their standards suddenly increase.

When you get to experience the best, what was previously considered good, isn't good any longer. Instead it's considered sub-optimal. Your new standard is only the best.

You can also think of it this way: If the first car you buy is a half a million dollar Ferrari, how would you feel about driving a $50,000 BMW? Probably not that great. Your expectations would be set so high that everything below a half a million dollar car, would be seen as a downgrade.

And this is exactly what lottery winners experience. So if you ever get your hands on a lot of money, don't rush to spend it, if you care about your happiness. Otherwise you will quickly raise your expectations to such a high level, that whatever brought you joy before, now won't.

Or at least it's going to be in lower amounts. But how should we spend our money, so that we can get the most happiness out of it? One way is to spend it on experiences.

Things like a romantic meal with your partner, a trip to an adrenaline park, or attending a concert. We don't really adapt to these types of experiences, because they're usually short. You can't get accustomed to a one time concert after all.

But keep in mind, that if you start dining out every day, then it's not considered an experience any longer. It's a change in lifestyle, which you will adapt to, and treat as a regular day. To avoid this trap, make sure to keep your luxurious experiences rare.

What's the point of a good meal, if it doesn't make you feel good? Another thing we could spend our money on, is other people. This might sound counter-intuitive, because when you think about spending money, you think about spending it on yourself.

But studies have shown that when people spend money on others, instead of on themselves, they feel happier. And it doesn't matter how the money is spent. It can be a small gift, or even a charitable donation.

Neither does it matter how much of it was spent. It's the act of giving that has measure. Improving someone's day, improves your day.

Another good way to spend your money is to buy yourself more free time. If you're like the vast majority of people, you probably have a day job. This means that more than half of your day is spent on the commute and at work.

However, people who spend most of their time working and trying to earn more money, tend to enjoy their lives less. Likewise, people who have more time for themselves, report enjoying their life much more, even if they don't earn as much. This is because doing something voluntarily because you enjoy it, and not because you have to do it, increases happiness while avoiding adaptation effects.

Whether it's gardening, rollerskating, or writing a novel. It's good to dedicate at least some of your time to a hobby you enjoy. So if you have the option to reduce your working hours, and still get through the month with less money, this can be a good investment for your day-to-day happiness.

And instead of thinking about it like a pay cut, you can think of it as "buying more time". However, this doesn't necessarily apply to everyone, as some people derive meaning and purpose from their job. And a lot of them don't even know which hobbies would make them happier.

Which brings me to my next point. Instead of spending your money on things or experiences that would make you happy, you can use it to minimize whatever makes you unhappy. You probably already know what you dislike and makes you miserable.

But I'll list 2 things I believe are worth striving to minimize. One of them is noise. Living in a noisy environment is something we don't ever truly adapt to.

Especially if the noise varies and comes in waves. If you're living next to a busy street, moving somewhere quiet would probably increase your happiness. Or you could buy noise-cancelling headphones.

Either way, it's worth trying to remove sources of noise from your life. The other thing is commuting. Most commutes are filled with heavy traffic and people tend to end up with higher levels of stress.

If possible, buy a home closer to your daily destination, or look for a way to change your work hours in a way that will allow you to avoid the rush hour traffic. Anyhow, try to find a way to avoid this major source of misery. Of course, what we find frustrating, differs from person to person.

Therefore, you will need to think about your own source of unhappiness, and see if you can use your money to reduce your exposure to it. So, to sum it up. Does money buy happiness?

Will more money make you happier? I don't know, you tell me. As you've seen, it's not a simple yes or no answer.

It really depends on the individual, the situation they're in, and how they're spending their money. In some cases money does make us happier, while in other cases it doesn't. Hopefully you now have a better understanding of the relationship between money and happiness.

I believe it's worth examining your own situation with all this information in mind, and then decide for yourself, if chasing more money is worth your time. Or if perhaps, you would get more happiness from somewhere else. As always, thanks for watching.

I hope you learned something new today, and you became better than yesterday.