In the field of economics, most of us fall into the category of consumers: we regularly buy and use new goods for a vast range of different reasons. Each time we buy something new, our brain rewards us with a well-earned shot of dopamine; making us feel accomplished and good about ourselves for a short while. This ties our purchasing power to things like self-worth and better mental health, inducing the question, are all wealthier people happier?
A 2010 study by Nobel laureates Daniel Kahneman and Angus Deaton looked into this idea, asking a controlled group of people questions such as 'how satisfied they were with their life' to plot against annual income. Kahneman and Deaton broke 'happiness' down into two parts: 'emotional well-being', pertaining to the frequency of different emotions, and 'life evaluation' obtained by asking the candidate an open ended question about their life.
The study ended up revealing a plateau in emotional well-being after the annual income of $75,000, presenting the idea that after a certain point, money provided no additional reassurance, and external factors had become more prevalent in the brain's decision-making process. However, interestingly, the candidates' subjective views on their life had increased with income. This clearly shows that other factors money brings, often outshine its practical value, as whilst people may not feel happier, they see themselves in a better place. The plateau potentially also links to the concept of the 'hedonic treadmill' - our brain adapting to improvements so a higher amount of material comforts are need to make similar changes.
The study induces the key question: why do we really chase money? Clearly after a certain point it doesn't make us feel any better physically, so why do humans spend - according to the US Bureau of Labour Statistics - 8.4h a day working for it? The answer lies in the feeling of security wealth provides - its theoretical purchasing power (TPP).
In 1949, economist James Dusenberry proposed the Relative Income Hypothesis - people's satisfaction with income depends on its comparative wealth, not absolute. This idea links directly to TPP due to the nature of comparison: human beings' first instinct when it comes to security is to look around them. People feel better about their wealth by observing other people's rather than spending it, observing suggesting that the money doesn't need to be spent in order to be enjoyed.
Richard Layard in his book 'Happiness: Lessons from a New Science', wrote 'We compare ourselves to others. If they get more and we get less, we feel deprived — even if our own circumstances are improving.” He correctly identifies the feeling of insecurity brought about by a comparative lack of income, even if the person's life shows upward growth. The 'life evaluation' section of the Kahneman and Deaton study reflects this view, as people rated their fulfilment in life higher despite not feeling the joys of spending - making their purchasing power theoretical.
Money doesn't need to be tangible to be valued.
Ultimately, happiness has always been said to come from the inside, and that's exactly what this view insinuates. The security and stability brought about by earning is what truly drives us to feel content, suggesting that hoards of money being spent was never the answer. One can feel happy by earning only the safety net for them to fall on, Kahneman and Deaton's suggesting $75,000. What comes after is merely mindset - how you view your position amongst others; TPP reflecting a construct built by our brains to equate security to wealth. However is it really impossible for someone to feel secure unrelated to wealth? Running endlessly on the hedonic treadmill may never bring long-term satisfaction, however a change in mindset might.
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