How much money will actually make you happy?

When I was a student, a friend of mine dreamed of making £100 a day. It looked like an incomprehensible sum of money; he simply could not conceive of spending enough to exhaust such riches. That was nearly 30 years ago – the equivalent fantasy today would be over £200 a day. My friend, who lived with his parents, was both naive and wise. His dream income is around twice the average UK salary, several times the world average and around a hundred times more than the global poverty line. How much does someone really need?

Economists have offered various answers over the years. In his famous essay Economic opportunities for our grandchildren, John Maynard Keynes argued that if incomes increased eight times over 1930s levels, “the economic problem could be solved, or at least be in sight of a solution”. Revenues have increased as much as he had expected, and yet no solution is in sight. This may be because, as Keynes also noted, there is an insatiable craving for the needs that make us “feel superior to.” . . our fellows”.

A little over a decade ago, Daniel Kahneman and Angus Deaton, each a Nobel laureate in economics, discovered that $75,000 a year (more than $100,000 today – roughly the dream income of my friend) were enough to optimize everyday experiences. More money than that did nothing to reduce the time people felt anxious, stressed, or sad.

However, there is another measure of happiness: do people rate their lives as satisfying? By this definition, Deaton and Kahneman found no limits to the uses of money: additional income, at any level, was correlated with higher levels of life satisfaction.

More recently, psychologists Paul Bain and Renata Bongiorno changed their focus: instead of asking how much money was enough, they invited survey participants to envision their absolutely ideal life. Then they asked how much money would be needed to achieve this life, if it came in the form of winning the lottery. These lottery prizes ranged from $10,000 (for those whose absolutely ideal life involves replacing curtains and upholstery) to $100 billion (for those whose absolutely ideal life involves a lot of drama over buying of Twitter). Most people, however, were not in favor of the first prize. A $10 million lottery prize was a popular choice.

Why? One possibility is that no one really knows how to answer the poll question, and $10 million was the central answer, a thousand times more than the minimum and a thousand times less than the maximum.

Another is that people are as naive as my friend. Little did they realize that after buying a nicer house and a nicer car, paying off their debts and setting up a sufficient retirement, they would find that they could really use a few extra million dollars.

Writer Malcolm Gladwell has another theory. As a guest on Nothing like a fish podcast, Gladwell argued that the problem with a hundred billion dollars is that you have unlimited choice. Simple decisions (pack lunch or buy a sandwich?) become incredibly complex (have dinner in Paris or Copenhagen, or just ask my personal chef to make something on my plane?). Life is cognitively overwhelming.

Another problem, says Gladwell, is that all the challenge is taken out of life. Do you like collecting stamps, or key chains, or Beanie Babies? Forget! You can buy them all, before that lunch in Copenhagen if you want.

My own take is slightly different. I don’t want $100 billion, but cognitive overload isn’t the problem. I’m pretty sure billionaires aren’t overwhelmed by the prospect of lunch. And, while projects are important, they are also scalable. If you liked collecting key rings, move on to collecting art: even with $100 billion to spend, the plan to create the largest private museum in the world is likely to succeed.

The real problem is that being a multi-billionaire would change your relationship with all other human beings. Keynes knew that we often desire to feel a little “superior to our fellow human beings” but when superiority becomes extreme, you become a target for kidnappers, terrorists, fraudsters and gold diggers of all kinds. Few of your relationships are likely to survive. Can you really trust those who do?

Bain and Buongiorno, the researchers who found that people would rather have $10 million than $100 billion, say their finding offers hope for sustainable development because it suggests people do not have unlimited material needs. . Maybe.

I draw a different conclusion. Wealthier people in past societies had material needs they couldn’t meet, but we can meet: air conditioning, air travel, and antibiotics. Our descendants may well have material needs that we rarely think about because they are beyond our reach, from teleportation to eternal youth.

The best hope for sustainable development is not that we stop wanting things that we currently cannot have. It’s that most of what we enjoy isn’t about money. My friend, with his fantasies of making £100 a day, enjoyed drinking beer and listening to music with all of us. It was a convivial way of life. In contrast, life with $100 billion must be so terribly lonely.

Tim Harford’s new book is ‘How to make the world add up

Follow @FTMag on Twitter to hear our latest stories first

Leave a Comment

Your email address will not be published.