Since I turned an adult, I have believed in a positive theory of life. In 2010, Daniel Kahneman, a Nobel prize-winning economist and psychologist, did some research and theorised that money could buy happiness up to the point of £72,000 a year. Above that amount, the extra money did not make you happier.
It’s a nice theory to latch onto. It gives you a realistic goal and enforces the belief that most materialistic things don’t make you happy.
So it was with some level of sadness that I read an opposing piece of research from an article in The Guardian. “In 2021, the happiness researcher Matthew Killingsworth released a dissenting study to the one done by Daniel Kahneman, showing that happiness increased with income and there wasn’t evidence of a plateau. Now the pair have teamed up in a process known as “adversarial collaboration” and released a new study finding that they were both sort of right, but Killingsworth was more right: for most people, earning more money makes you happier.”
You can read the full article linked above, but I think that they are both wrong. Yes, me saying that two highly respected, Nobel prize-winning individuals are incorrect but hear me out. The theories are cases of correlation vs causation confusion. While I’m sure both of them already know this, they used money as their focus of research for sensationalism, so I’ll take a chance at throwing a few jabs at them.
It is not money that is causing this potential plateau or lack of. It is status and power. In modern society, status and power are closely tied to money but are not the same. This is consistent with social dynamics and the idea that materialistic things don’t make you happy. People are in constant competition with each other.
For example, someone with little status winning millions from the lottery is unlikely to be as happy afterwards as someone who earns a decent salary of, say, £100k a year. If the money from the lottery is used wisely, that person can gain status and power quicker. Still, many people don’t have the fundamental skills such as communication, money management and so on to get there. In comparison, the person earning £100k might have less money but has gained enough skills to “justify” his higher levels of status.
To summarise – status and power in relation to others and the continuous progress of it, are what keep us happy. In modern society, money can help you gain status and power quicker, but it is neither necessary nor sufficient. I.e. there are people with no money and lots of status and power, and there are people with lots of money and little status and power.
So why do some people reach a plateau of happiness at certain income levels while others can go far and beyond? There are multiple reasons:
1) Effects of inflation. The research done by Killingsworth was done in 2021 and “only” went up to $500k income. While Kahneman’s was done in 2010, and the plateau level was set at £72k. However, inflation has meant that the level of life, and thus status and power, has deteriorated with the same income. The Bank of England calculator states that goods that cost £72k in 2010 would cost over £100k today, but that’s not the complete picture. Inflation % is calculated based on a set of commodities, primarily common goods rather than “luxuries”, and while I don’t have the research to back this up, many luxuries such as travel, holidays, and service have increased in price significantly more than common goods. What does this all mean? That it’s not necessarily that money and happiness share a linear relationship (when one increases, the other does as well) but that the plateau level of money has increased. In my view, there is still a level of money above where money does not make you happier. Point 2 explains why.
2) Money can help you reach your peak status and power, but we all have limits. Even all the money in the world couldn’t make you top of the chain status-wise if you suffer from anti-social disorders, are chronically dull, unintelligent, or anything else that severely limits you. As rude as it is to say it, we all have our limits, some of which are due to things we cannot change about ourselves, no matter how much money we have. Sometimes though, we impose artificial limits on ourselves…
3) Everyone has different values, and status depends on those instead of money. Ask a dedicated Buddhist to answer what will make him feel happier honestly, and it will probably be to reach a higher level of spirituality than his monk friends. Why? He sees his status and power judged based on spirituality rather than anything else. Offer him millions of dollars, and he still wouldn’t trade his status for them. This is why different communities and types of people can have wildly different hierarchies. Money in some of these communities does not have the same ability to purchase status, so it is less relevant. However, sometimes people confuse their values with fear:
4) Rise aversion Most people do not want to be president or the wealthiest person in the world, nor be the CEO of the biggest company in the world. Why? Many people, including me, would say it is because they value spending their time in other ways and that these titles have many responsibilities they do not want. These ‘self-limiting’ values tend to come from scarcity and risk aversion. Scarcity because we typically haven’t had the opportunity to experience a particular lifestyle, so we know that, realistically, that is more or less the upper limit of our capabilities. We would enjoy life enough at around that point. Jumping too many levels of status or power in one generation requires tremendous risk-taking, and most people are too risk-averse to attempt this.
Say, for example, that you want to have a family in a semi-big house near nature, grow your food and have enough money to pay for a moderate amount of security in life. This may be enough for you, but either your kids or their kids will crave more. This is because they will be born in this level of abundance and will want more. I cringe a little when people laugh at rich/higher-status people for their failures with the justification of “so what, they still have so much more than us”. This mentality doesn’t take into account that everything in life is relative. It’s just not how humans work. To prove that, how many lower class people have a shit day at work, get fired, get dumped or any other negative event and then say, “im not gonna complain, at least im not starving in a 3rd world country”? Hardly anyone.
Relative hierarchies have probably biologically evolved in us. Imagine how depressed we would be if we were born in the bottom class in a tribe while craving only the top spot. You would get depressed and ill and not last long enough to reproduce. So we all have limits depending on our starting point and capability to learn new skills.
Some people can jump multiple levels of status in one life, but they usually excel in a skill currently in extreme demand, either due to natural talent or luck in practising the right skill at the right time. To bring it back on topic – subconsciously or consciously, we all know our rough capabilities in the skills needed to gain a level of status and power in life. For every person, the amount of money required to help them reach this peak of status and power will vary, but for most of us, it will reach a plateau, and this threshold will not be as high as people think.
What does this all mean for you? It reinforces the basis of this whole website. Figure out where you are in life, what you want to achieve next and the most efficient way to do it. For some, it could be indirectly by first improving your finances; for others, money won’t make much difference. And remember not to let people with different values or status hierarchies distract you from your own. Be open-minded, of course, but be confident to resist cheap temptations.
