To What Extent Does Money "Buy" Happiness? – Part I

After a break, I'm back on the blog with an article I promised last year, about my bachelor's thesis research on money — the reasons people make money and life satisfaction.

During this break I worked a lot on myself, earned a few more certifications, and completed further training in coaching and psychology, so now I'm back with renewed energy and knowledge I want to share with you.

Fair warning: this is a longer article in two parts, so grab yourself some tea, water, or coffee and join me for the research that follows. You may well have taken part in it yourself, so let me take this chance to say thank you 🙂

The Link Between Money and Happiness

This connection has been studied extensively over time. One example comes from the United States, where a study by Diener and Oishi in 2000 found that although GDP per capita tripled between 1940 and 1990, life satisfaction levels stayed constant.

The literature suggests that, while money can bring people a form of satisfaction, it won't buy them lasting happiness, regardless of income. Although research shows that, at a societal level, wealthier individuals tend to be happier than less wealthy ones, at the individual level of analysis, personal income doesn't seem to adequately predict people's well-being (Ashkanasy, 2011).

We could say that money is linked to well-being, but only up to a certain threshold. According to the Easterlin paradox, once you go beyond a "reasonable minimum" standard of living — associated with the "middle class," the sociological majority in developed economies — money no longer contributes to producing happiness (Gavreliuc, 2019). However, according to other studies (Diener et al., 1985), the wealthiest Americans do appear to be happier than average.

As you may know, it's very hard to establish cause and effect when it comes to happiness and money, since several factors likely contribute to happiness, such as culture, beliefs, values, and the fulfillment of certain psychological needs (autonomy, competence, and relatedness).

It seems that, for Romanians, socioeconomic insecurity is a significant factor preventing happiness, since it takes time for survival and living conditions to become decent enough to allow people to focus on higher-order needs.

According to another study on entrepreneurs (Srivastava, 2001), people who make money to compare themselves socially with others, to feel powerful, to show off, or to overcome self-doubt are less happy. In other words, those who make money for reasons that don't align with their values and principles are less happy and less fulfilled.

If you're trying to solve self-doubt, a lack of appreciation, or low self-esteem by making more money, you may end up going in circles for a long time, and feeling even more unfulfilled as a result.

People with psychological insecurities may try to use money as a way to feel superior to others or to gain power. But if self-doubt is at the root of that motive, chasing money won't ease it, because a lack of money isn't the cause of psychological insecurity.

Money becomes problematic when it's used to do things it simply can't do. Money can't buy love, and it can't buy character; it doesn't directly improve self-confidence, because a lack of money isn't the primary cause of these gaps.

On the other hand, using money in line with your personal values to achieve certain goals is associated with increased well-being.
Some studies show that what matters is the reason why you make money, not necessarily the fact that you're money-oriented.

Some motives can be extrinsic — comparing yourself with others, proving your power or control, or compensating for certain vulnerabilities. Others are intrinsic — independence and autonomy, helping your family, or fulfilling certain dreams and hobbies.

Self-Determination Theory and Its Role in Our Lives

According to self-determination theory, developed by Ryan and Deci, we humans have three basic psychological needs: the need for autonomy, competence, and relatedness. When we meet these needs, our level of well-being becomes optimal.

Within self-determination theory, these needs are psychological elements essential for continuous growth and development, for integrity and well-being.

Competence is the belief that one has the capacity to influence outcomes that matter to them.

Relatedness is the experience of having satisfying and fulfilling social relationships with significant others.

Autonomy is a human need, and it means acting with a sense of choice, will, and self-determination. Self-determination theory focuses in particular on intrinsic motivation. When people act out of intrinsic motivation, they choose and enjoy what they do, without being constrained by outside forces, or even by controlling internal forces that demand and constrain. Meeting the human needs for competence, relatedness, and autonomy creates sustainable motivation, because it arises from one's sense of self and comes with willingness and engagement (Stone, Deci & Ryan, 2009).

According to the assumptions of self-determination theory, these basic needs are universal — that is, they refer to innate rather than learned aspects, so they're expected to be evident across all cultures and all stages of development.

In my research, I wanted to see whether the reasons people make money are relevant to changes in well-being. That is, whether people who make money for extrinsic reasons, not aligned with their values, have a lower level of well-being, and conversely, whether people who make money for intrinsic reasons are more fulfilled.

Read the second part of this article here: To What Extent Does Money "Buy" Happiness – Part II

See you soon,

Raluca