Academic journal article New Zealand Journal of Psychology

How Much Happiness Does Money Buy? Income and Subjective Well-Being in New Zealand

Academic journal article New Zealand Journal of Psychology

How Much Happiness Does Money Buy? Income and Subjective Well-Being in New Zealand

Article excerpt

One of the shortcomings of modern civilization--ancient civilization too, for that matter--is that the average man never gets all he wants of the most desirable products, never makes his life fit his dreams.

--Jack Vance, "I'll Build Your Dream Castle" (1947)

He disliked him because he found the idea of someone who was not only privileged, but was also sorry for himself because he thought the world didn't really understand the problems of privileged people, deeply obnoxious.

--Douglas Adams, Dirk Gently's Holistic Detective Agency (1987)

The rising costs of living and unemployment in the wake of the global financial crisis have brought monetary considerations to the forefront of people's minds. In this climate of economic uncertainty, the age-old question of whether earning more money makes one happier seems especially pertinent. Decades of research by economists and psychologists suggest that the answer to this question is far from straightforward (see Diener & Seligman, 2004; Fischer & Boer, 2010 for discussion). For example, Kahneman and Deaton (2010) recently found that although earning more was linked to higher life-satisfaction (general positive evaluations of one's life overall), the link between income and day-to-day emotional well-being was far weaker. They also found that once a certain level of income was reached (approximately US$ 75,000), no further gains in emotional happiness were accrued. This suggests that the effect of income on happiness depends on what form of well-being is being investigated and on the income level at which the effect is being studied. It seems that money does 'buy' happiness, but only a certain kind of happiness, and only up to a point.

Despite the vast international literature, data on the effect of income on happiness in New Zealand remains scarce. We aim to fill this gap and extend the corpus of research in New Zealand by investigating the relationship between household income and four indicators of subjective well-being: overall life-satisfaction, happiness, stress and self-evaluated ability to fulfill basic needs. We also examine whether the perceived ability to fulfill one's basic needs acts as a mechanism through which income affects happiness and life satisfaction. To explore these issues we analyzed data from a large national probability telephone sample (N = 5197) collected in 2008.

Income and the Fulfillment of Basic Needs

The research on income and wellbeing consistently shows that poverty undermines happiness. For example, it has been found that national income correlates strongly with well-being (r = .70; Inglehart & Klingemann, 2000). People in richer nations are significantly happier, on average, than those in poorer ones. Similarly, significant declines in national per capita income (as happened in Belgium in 1979) are accompanied by marked decreases in citizens' reported subjective well-being (Inglehart & Rabier, 1986).

At the individual level, financial strain and economic difficulties are strong predictors of depression (Wheaton, 1994). A comparison of subjective well-being between the rich and the poor in 19 nations showed that the poor were far less likely to be satisfied with their lives than were the rich (Diener & Oishi, 2000). The poor also report having fewer positive emotions and spending a greater proportion of time feeling unhappy than their wealthy counterparts (Bradburn, 1969). Thus, poverty is associated with multiple indicators of negative well-being. The impact that wealth has on well-being among those who are relatively well-off, however, is less certain and has been the subject of much debate (see Veenhoven & Hagerty, 2006).

A major source of contention in the literature is whether income predicts happiness among those who are already fairly well-off. Some studies (e.g. Easterlin, 1995; Myers, 2000; Oswald, 1997) provide compelling evidence to the contrary and show that large increases in income are not accompanied by corresponding increases in wellbeing among those living in wealthy nations. …

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