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Think money can't buy happiness? Think again

It turns out, rich people are happier than poor people.

A new Brookings Institution paper finds that people who live in rich countries are more satisfied with their lives than those in poor countries, and rich people within individual countries are happier than their poor neighbors.

That old “money can’t buy happiness” chestnut, formally called Easternlin’s paradox by economists after an influential 1974 study that concluded rich nations are no happier than poor ones, is such an enduring myth because it holds a lot of appeal, said Justin Wolfers, one of the paper’s authors, a nonresident fellow at Brookings and professor of economics and public policy at the University of Michigan.

“I think it’s incredibly comforting to believe in it,” he said. “You can believe that people who live in grinding poverty… are just as happy as you are.”

Previously, some economists predicted that even if greater wealth meant greater happiness, it was only true up to a point. Once you reached a set point of satiation, extra money wouldn’t matter.

“People are good at making the best of what they have. The way we deal with our emotions is quite adaptive,” said Hal Hershfield, an assistant professor of marketing at New York University's Stern School of Business. Even the rich, he pointed out, “are going to have to deal with everyday pleasures and displeasures.”

Last year, Skandia International’s Wealth Sentiment Monitor surveyed 13 countries (not including the United States) and found that the average income people need to feel happy is around $161,000. Research published in 2010 based on surveys of 450,000 Americans said that well-being increased along with income up to $75,000, then day-to-day happiness leveled off, although feelings of success and well-being continued to rise.

But the Brookings researchers found no cutoff point. “There is literally no evidence of satiation in any data set anywhere,” Wolfers said.

In a survey of more than 1,000 Americans conducted by Gallup and analyzed by Wolfers and his co-author Betsey Stevenson, only 1 percent who made more than $75,000 said they were “very dissatisfied” with their lives, and only 4 percent ranked their happiness in the lowest category.

The effect appeared even more pronounced further up the income spectrum. The handful of respondents who earned more than half a million dollars a year all ranked their happiness and satisfaction at the highest levels.

“We still found that the really privileged were happier than the merely privileged,” Wolfers said.

Overall perceptions of satisfaction and happiness might not tell the whole story, though. “What also matters is how people actually *feel* on a day-to-day basis,” Elizabeth Dunn, associate professor of psychology at the University of British Columbia, said via email.

“If you make $250k rather than $90K, you're likely to rate your life as a whole more positively,” she said. “But you're not likely to feel any more enjoyment or happiness on a typical day. You're no more likely to laugh or smile on a typical day.”

That’s because wealth really is a proxy for autonomy. Richer people have greater freedom to decide where they want to live, what jobs they hold and how they want to live their lives. People who live in wealthier countries also don’t bear the stress and fear of threats like starvation or losing a child to a preventable illness. 

“It’s not that it’s literally the greenbacks in your wallet that make you happy, but rather... being able to make choices about your life and making choices that give your life meaning,” Wolfers said.