Can money buy happiness? Well, it does seem to be the case that people living in rich countries are happier than those in poor countries.
We establish a clear positive link between average levels of subjective well-being and GDP per capita across countries, and find no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being. We show that the estimated relationship is similar to the relationship between subject well-being and income observed within countries. Those enjoying materially better circumstances also enjoy greater subjective well-being and ongoing rises in living standards have delivered higher subjective well-being. Betsey Stevenson and Justin Wolfers (source)
This study, based on two cross-country happiness surveys (one by Pew and another by Gallup in which people report their own levels of happiness), found that richer countries are happier than poorer ones, and that this is reflected internally in countries (rich people are happier than poor people). No surprise perhaps, but an additional reason to fight poverty, on top of the reasons linked to under-education, ill-health, lack of political representation etc.
On the other hand, there is this:
There is no significant relationship between the improvement in happiness and the long term rate of growth of GDP per capita. This is true for three groups of countries analyzed separately − 17 developed, 9 developing, and 11 transition − and also for the 37 countries taken together. Time series studies reporting a positive relationship confuse a short-term positive association between the growth of happiness and income, arising from fluctuations in macroeconomic conditions, with the long-term relationship, which is nil. (source)
And there’s this survey showing that countries which report themselves as being the happiest tend to be poor and middle-income countries, while the gloomiest are rich countries:
Some argue that there is a satiation point beyond which wealthier countries have no further increases in subjective well-being: higher income is positively associated with happiness and life satisfaction but the association is curvilinear in the sense that more income means more happiness but less so at high levels of income than at low levels (see also the Easterlin paradox). If this is indeed the case – there is some dispute, see the first quote at the top of this page – then the declining marginal utility of wealth could offer one explanation.
Others insist that happiness is a relative concept. It’s not the amount of money you have that makes you happy, but whether you have more money relative to other people. The relative nature of happiness can even result in diminished happiness. Daniel Kahneman has called it the “hedonic treadmill”: because we compare ourselves to others, we all work harder and harder in order to be able to buy more stuff. But because everyone else is buying more stuff as well, we never get happier. On the contrary, working harder may reduce happiness. This could explain why some poor countries have a high rate of self-reported happiness (see graph above).
Why does money buy happiness, and why is poverty a cause of unhappiness? Security in general, and particularly financial security – which is, after all, a prerequisite for other types of security – is important for well-being. More money also means more choice, and more choice means more freedom. More freedom, in turn, means more happiness, as is argued here.