Why money makes Brits happy – The London Economic

Why money makes Brits happy

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By Valentina Magri

“Money doesn’t make you happy” is the typical saying that you state when you want to raise the spirit of people dissatisfied with their personal finances. But if you live in the UK, you should forget it, cash is king.

Money and happiness

Basically, there are two main views over the link between money and happiness. According to Easterlin, happiness comes from money until a saturation point (Easterlin paradox). Once you overcome this boundary, the correlation between happiness and money broke down. Betsey Stevenson and Justin Wolfers have a completely different idea: earnings definitely increase happiness, even if at a slower rate than income growth. Which of this two ideas suits the British case?

How does happiness work in the UK?

A recent ONS study investigates the relationship between personal well-being and household income expenditure. Data comes from a survey of over 8,000 adults (over 16) and cover the period from April 2011 to March 2012. Well-being is measured along four dimensions: higher levels of life satisfaction, lower levels of anxiety, sense that what you do in your life is worthwhile and happiness. The research finds that:

o Those in households with higher incomes are more satisfied and happier than the others; in addition, they are less anxious on average;
o Household income is related with measures of well-being other than personal earnings; in particular, they are most strongly correlated with life satisfaction;
o Increases in income are mostly related to increases in well-being for those at the bottom of the income distribution, that is: poorer people;
o Household expenditure has a stronger relationship with people’s life satisfaction, sense that the things are worthwhile and happiness, than household income, but they are not related to lower anxiety.

Why?

The ONS supports an OECD argument to explain this fact: income determines people’s ability to satisfy their preferences and desires, thus higher income means a higher well-being. Indeed, poorer families (in the bottom fifth of the income distribution) enjoy a lower life satisfaction than the richer ones (in the top fifth of the income distribution) Another important factor in triggering happiness is the source of the household income. If it comes from benefits, it is associated with greater anxiety and lower well-being in terms of all four measures of it: higher levels of life satisfaction, lower level of anxiety, sense that what you do in your life is worthwhile and happiness. These relationships hold also after considering different employment statuses and it affects more men than women.

The results are similar when considering household expenditure, except for lower anxiety: income is related with that, while expenditure not.

Why?

It is worth noting an important difference: household expenditure is a better measure of a household’s material standard of life, since it takes into account wealth accumulation during life via savings. Bearing this in mind, the research explains that the low association between higher expenditure and lower anxiety is debt. That is: many families with high levels of expenditure bear the risk of falling into debt. This suggestion is backed by the results of the latest ING International Survey on Savings. In any case, among many hypotheses, there is one certain thing: Brits are strong supporters of Stevenson-Wolfers’ idea.

Pounds equal pleasure.

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