How Our Income and Spending Can Create Happiness

Some researchers believe that more money can make us happier. Now we need to add that it could also depend on how you spend the money.

Let’s take a look.

Money and  Happiness

What We Earn

A year ago, we saw what more than 33,000 people and 1,725,994 data points said about happiness. The information came from a track-your-happiness app that conveyed multiple on-the-spot snapshots of how employed adults felt during their daily lives. Wharton School Senior Fellow Matt Killingsworth’s goal was to relate income to experiential and evaluative well-being.

More simply, his two big questions were:

• How do you feel right now?
• Overall, how satisfied are you with your life?

When the app pinged, people with positive feelings chose words that included good, inspired, proud, interested, and confident. However, they could also respond with bad, bored, upset, and stressed. The researcher, Matt Killingsworth, then correlated the answers to how much participants earn:

From there, building from feelings, he showed us how experiential well-being and life satisfaction climbed with income:

He also lets us know that it’s not only having the money, it’s spending it.

What We Spend

Thinking of the material goods we buy like watches and clothing and the intangibles like vacations, scholars wanted to know which kinds of purchases made us happier. Similar to the income study, accessing thousand of data points, trackyourhappiness.org was used for on-the-spot snapshots of how people felt about what they bought.

Represented by the unshaded rectangles, the experiential purchases made people happier:

You can see that scholars have concluded that we get more pleasure from the intangibles we buy and receive. They’ve hypothesized that the reasons could be that experiences can elevate our “sense of self,” and bring us closer to others through what we have shared. In addition, experiences are more fun to talk about than our material goods. They live onward.

Our Bottom Line: At the Margin

Economists like to say that they are always observing the margins in our lives. As the (imaginary) line where we do more or less of something, the margin determines our decisions. When we decide to study for an extra hour or hire another employee, we are at the margin. Scholars are thinking at the margin when they focus on the anticipatory, experiential, and remembered utility of a purchase.

Indeed, everywhere in happiness studies and in life, we are at the well-being margin. According to this Wharton research, how we feel at that margin can depend on our extra (marginal) income .

My sources and more: Wharton School Senior Fellow Matt Killingsworth wrote this paper, and, with others, this one. He also developed the track your happiness website. (Please note that some of  “Our Bottom Line” was in a previous econlife post.)