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Now It's A Fact: Money Doesn't Buy Happiness - Forbes

Those who study the link between cash and contentment come up with much the same answer -- and a few surprises about why income matters at all.
By Matthew Herper, Forbes.

It's official: Money can't buy happiness.
Sure, if a person is handed $10, the pleasure centers of his brain light up as if he were given food, sex or drugs. But that initial rush does not translate into long-term pleasure for most people. Surveys have found virtually the same level of happiness between the very rich individuals on the Forbes 400 and the Maasai herdsman of East Africa. Lottery winners return to their previous level of happiness after five years. Increases in income just don't seem to make people happier -- and most negative life experiences likewise have only a small impact on long-term satisfaction.

"The relationship between money and happiness is pretty darned small," says Peter Ubel, a professor of medicine at the University of Michigan.

That's not to say that increased income doesn't matter at all. There is a very small correlation between wealth and happiness -- accounting for about 1% of the happiness reported by people answering surveys. And for some groups, that relationship may be considerably bigger. People who are poor seem to get much happier when their monetary prospects improve, as do the very sick. In these cases, Ubel speculates, people may be protected from negative circumstances by the extra cash. Another possibility is that the money brings an increase in status, which may have a greater impact on happiness.

Reality differs greatly from fantasy
Why doesn't wealth bring a constant sense of joy? "Part of the reason is that people aren't very good at figuring out what to do with the money," says George Loewenstein, an economist at Carnegie Mellon University. People generally overestimate the amount of long-term pleasure they'll get from a given object.

Sometimes, Loewenstein notes, the way people spend their money can actually make them less happy. For example, people derive a great deal of pleasure from interacting with others. If the first thing lottery winners do is quit their job and move to a palatial but isolated estate where they don't see any neighbors, they could find themselves isolated and depressed.

Other trophies simply don't bring the payoff one expects. Says Loewenstein, "If you're a single male driving around in the Ferrari with nobody next to you, it's a glaring omission."

The central problem is that the human brain becomes conditioned to positive experiences. Getting a chunk of unexpected money registers as a good thing, but as time passes, the response wears off. An expected paycheck doesn't bring any buzz at all -- and doesn't contribute to overall happiness. You can get used to anything, be it hanging by your toenails or making millions of dollars a day. Mood may be set more by heredity than by anything else: Studies of twins have shown that at least half a person's level of happiness may be determined by some of the genes that play a role in determining personality.

No highs without lows
But this raises another question. How important is happiness, anyway? People with chronic illnesses describe themselves as happy, but they would still pay large sums for better health. And although healthy individuals are not much happier than quadriplegics, they would pay large sums of money to keep the use of their limbs. Some of life's most satisfying experiences don't bring happiness. For instance, having children actually makes people less happy over the short term -- but that doesn't necessarily mean we should stop procreating.

"I think it's possible to way overestimate the importance of happiness," says Loewenstein. "Part of the meaning of life is to have highs and lows. A life that was constantly happy was not a good life."

However, there may be at least one important relationship between money and happiness, according to Ed Diener, the University of Illinois researcher who surveyed the Forbes 400 and the Maasai. Diener has also written that happy people tend to have higher incomes later on in their lives. So, while money may not help make people happy, being happy may help them make money.

Source: http://moneycentral.msn.com/content/invest/forbes/P95294.asp

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