Money can make you happy -- here's how.

I realise we are contradicting ourselves, but it turns out there is a way in which money can make you happy. The story involves a business professor and how we constantly make mistakes about how things will make us feel. Russ went through habituation in his last post; habituation is linked to the idea of diminishing returns. Here, let me show you a graph.


As you can see when we have little money more money does make quite a bit of difference, but the more money we have the less it increases our happiness. There comes a point when it just makes no difference at all. Even huge increases in wealth don't do anything for our happiness.

If you don't believe me or think that Russ's paper is way too old and that new papers are bound to find something differenct take a look at this comprehensive review on the topic by Richard Easterlin.

Hey, what happened to money making you happy?


I said at the start that money could make you happier, but so far I have only shown you evidence to the contrary. Well, here's how it works: money makes you happy when you give it away. Remember I also said this was also about how we constantly make mistakes about how things will make us feel; well, here goes. If I gave you some cash and then I asked you if the cash would make you happier by spending it on yourself or spending it on others you would probably tell me that it would make you much happier to spend it on yourself---and you would be dead wrong.


Enter the professor

Michael Norton has looked at this issue and -- to his and everybody else's surprise -- it turns out we are happier when we spend on others and we feel no different when we spend on ourselves. Also, it turns out that it doesn't matter if you do this experiment in an affluent country or in a country with modest income, the results seem to be the same: people are happier when spending on others. He theorises that this might be because if we spend on others we give a very strong signal to ourselves that we must be doing really well since we can afford our generosity. His research also stretches to the case of time. From his findings it turns out that if you feel you have no time for yourself the best way to change that is to give your time to others!

If you want to be a little happier right now head on over to this page and donate some cash to Anxiety UK, one of the charities we support. It's for a mighty good cause.

This is Prof Mike's TED talk which is really worth a watch.