The hard truth about money and happiness

If you Google ‘money can’t buy you happiness but…’ you’ll get many different (and amusing) results. Some of our favourites:

  • “Money can’t buy you happiness but I’d rather cry in a Jaguar than on the bus.” (Françoise Sagan)
  • “Money can’t buy you happiness but it can buy you a boat.” (song by Chris Janson)
  • “Money can’t buy you happiness but it does bring you a more pleasant form of misery.” (Spike Milligan)

Is it true that money makes us happy, though?

There’s a common, perhaps rose-tinted view that we were happier in the 1950s and 60s. In retrospect, that period was a ‘golden age’ – the war was over, there was virtually full employment (a mere 1% unemployment in 1955 – a post-war low – and well under one million throughout the 60s) and, according to Prime Minister Harold Macmillan in 1957,  we’d “never had it so good”.

The average salary in 1965 was around £900-£1000 (around £16,500 in today’s money), whereas today it is over £26,000. We earn more now – so we should feel happier, right?

But if we look at what we have to spend it on, it’s easy to see why many feel poorer (and less happy).

Unless you’re very lucky and inherited a house, buying your home, typically in your mid-20s, was probably your biggest expense. But today, owning even a modest home in some parts of the UK is hard to imagine for many young people. A deposit on a home in London in the 1960s could have cost around 25% of your annual salary, whereas someone looking to buy a similar home today would probably need to put down £40,000 or £50,000 – as much money as they earn in a year, or even two.

Average house prices now are six to seven times average income, and the affordability of buying or renting a home today compared with 50 years ago has almost broken the link between income growth and personal prosperity for many.

There’s another reason we feel less prosperous now than our 1960s counterparts: growing expectations, driven by the availability of more ‘must have’ stuff and – importantly – the visibility of ‘perfect’ lifestyles in the media and social media.

US financial author Morgan Housel, writing about this phenomenon, says:

“If you look at the 1950s and ask what was different that made it feel so great, this is your answer. The gap between you and most of the people around you wasn’t large. It created an era where it was easy to keep your expectations in check because few people lived dramatically better than you.

The lower wages felt great because they’re what everyone else earned.

The smaller homes felt nice because everyone else lived in one too.

The lack of healthcare was acceptable because your neighbours were in the same circumstances.

Hand-me-downs were acceptable clothes because everyone else wore them.

Camping was an adequate vacation because that’s what everyone else did.

It was the one modern era when there wasn’t much social pressure to increase your expectations beyond your income. Economic growth accrued straight to happiness. People weren’t just better off; they felt better off.”

As we moved into the 1980s, Housel continues, “The glorious lifestyles of the few inflated the aspirations of the many.” We were no longer satisfied with what we had, or what was reasonably within our reach.

Is £69,000 enough?

A 2010 study by Nobel Prize-winning economist Daniel Kahneman and Angus Deaton suggested that happiness does rise with income, but only up to a certain level. At the time, this was judged to be $75,000 (£55,000). In 2021 terms this equates to $94,092 (£69,023).

Money doesn’t buy happiness, but the 2010 study suggested that level of income would confer a level of financial security that would make us feel OK about life overall.

£69,000 is approaching three times the average UK income, implying that a lot of people don’t have that level of financial security and wellbeing. But it really depends on who you are, what you need and what stage of life you’re at.

If you earn £69,000 and have paid off your mortgage, you will probably be laughing. But if you earn that, are paying thousands per month in mortgage repayments, putting children through school or university and have other responsibilities besides, you won’t feel very well-off.

Indeed, later research showed that life satisfaction does not peak with a certain level of income, but that we become more satisfied the more money we have.

Satisfaction isn’t quite the same as happiness, of course. It takes more than money to make us happy. But it’s perhaps true to say that financial security is a bedrock on which happiness can be experienced. It’s certainly true, as the same study showed, that low income makes life’s disappointments like divorce, bereavement and ill-health harder to bear.

So what is happiness?

The study of happiness is a science in itself. A number of factors are equally, if not more important to our happiness than money. These include good relationships, spending time with friends, slowing down, being mindful (enjoying the moment), exercise, helping others, and prioritising spending our spare cash on experiences rather than just buying stuff we think we need, but probably don’t.

What’s the point of having a top-of-the-range performance car if you still have to sit in two hours of traffic to get to an office where you earn megabucks? As long as you can cover your financial obligations, you will likely be happier taking a lower-paid job closer to home and freeing up 90 of those 120 minutes to spend with your family.

Our job as financial planners is to work with our clients to help them use their income and wealth to achieve life goals. We say ‘goals’ (such as retiring at a certain age, helping children buy a home, travelling the world – whatever floats our clients’ boats), because those aren’t always determined by income, but by careful planning.

The details may change over the years, of course, but not moving the goalposts – deciding what you want, when you want it, planning for it and sticking with it, within reason – means you’ll be able to score those goals.

Will they make you as content as you want to be? Only you can decide that, but one thing is for sure – continually striving for more money without a goal in mind is unlikely to be the answer to what makes you happy.

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