February 01, 2006

Is £25k enough?

Yesterday’s T2 supplement contributed to the long running discussion about wealth and happiness. The general thrust is that “Once you’re earning £25 000 and upwards..money becomes increasingly irrelevant to genuine happiness”. Methodological issues relating to surveys of subjective well being suggest claims like that could be treated with caution; particularly when accompanied with suggestions for government policy. Still, it’s worth a read.

True happiness, said Bob Monkhouse, is when you marry a girl for love and later discover that she has money. We all appreciate the joke, of course, because though one side of us knows that a loving relationship provides a good chance of happiness the other thinks it would be guaranteed if that relationship made us rich as well.

Yet study after study shows that money fails to buy happiness. Incomes have increased threefold in Britain since 1950 but contentment levels have barely shifted. European research indicates that lottery winners revert to their previous levels of happiness within a year of their windfall. One look at the permanently sullen face of the multi- millionairess Victoria Beckham appears to prove the point.

Full article here.

Around the web, there has been some discussion of the role research on subjective well being should play in policy formation. See this post from Will Wilkinson on the Happiness and Public Policy blog and this from Chris at Stumbling & Mumbling. One World Week also featured a talk on the issue.

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  1. Chris May

    I don't know whether £25K would turn out to be enough, but there's certainly an element of truth in the argument. My salary halved when I came to work at the university, but I'm much happier. What's more, when I contemplated making the change I was convinced that I would suffer as a result of the drop in wealth, and (I'm pleased to say) turned out to be utterly wrong.

    Wilkinson (your first reference) seems to be willfully mis-understanding the argument by asserting that the increase in suicide rates during the Great Depression somehow doesn't support the idea that above a certain threshold happiness is largely independent of wealth. Though he's right, I think, when he points out that this reseach is still really in the realms of conjecture supported by annecdote (though as an ex-physicist I sometimes think that about most of economics ;-) )

    01 Feb 2006, 13:12

  2. See what you're saying. When thinking of things that would make me more content, a hefty salary and a flash car don't rank too highly; and that's as a student with just enough money for accommodation, food and trips out. I hope to have those things, but don't delude myself that that they're ends in themselves.

    I’m doubt Wilkinson would deny that there exists some threshold which differs between individuals. He’s taking issue with the use of depression data and suicide data to prove a given point when conflict between the two implies one or the other should be ignored.

    Though he's right, I think, when he points out that this reseach is still really in the realms of conjecture supported by annecdote (though as an ex-physicist I sometimes think that about most of economics ;-) )

    It’s common knowledge that economists suffer from physics & maths envy ;)

    01 Feb 2006, 14:07

  3. I think the amount of disposable income has to factored in though. It is pretty meaningless to quote a figure without any idea of how much of that is disposable.

    For example, if I had £40Ks worth of bills every year; £25K just isn't going to cut it…

    01 Feb 2006, 14:11

  4. Certainly. I guess the nice round figure was intended mainly for the headlines. The sentiment behind it is that you only need enough for "basic needs for food, shelter and healthcare". Suppose you could expand the set of needs to include education and pensions too.

    01 Feb 2006, 14:19

  5. Chris May

    if I had £40Ks worth of bills every year; £25K just isn't going to cut it.

    I think the assertion is that if you had £40Ks worth of bills each year, you could reduce them (have a smaller house, run a more economical car, buy less stuff, etc) without reducing your happiness.

    Of course, there are always going to be exceptions; someone who has expensive medical requirements, say, or 14 children. But in the general case I think it's true. Presenting the argument in terms of disposable income is tricky, because ultimately all of your net income is disposable/discretionary; you can choose whether to keep paying your mortgage or move, for example.

    01 Feb 2006, 14:21

  6. Yeah, it's obviously more complicated than just £25k is enough, but as Iyobosa says, the sentiment is right. This year I got a grant of £12k (untaxed), which feels to me like an absurdly large amount of money. I can imagine needing a bit more if I had my own house rather than sharing, if I had a family, etc., but at the moment it's far more than I need. With that I can pay my rent, run a car, fund my habit for expensive food and restaurants, buy a new laptop, and still have plenty to spare.

    01 Feb 2006, 14:38

  7. I don't think there's any happiness in living the millionaire's lifestyle, even if you can pay for it. I doubt the very wealthy have, for example, a lower suicide rate than the national average, or happier relationships.

    Now, not ever having to think about money or work – that is, being able to live off interest and dividends – is a different thing altogether. I'd love to be in that situation, even though I hope I wouldn't live an extravagent life. Never having to worry about car insurance costs, private health/school fees, finding work, etc, would be great, although it wouldn't alone make me happy.

    Driving a Ferrari (as opposed to a less flashy fast car :) ), living in a 271-bedroom mansion and waltzing around in a private jet I'll leave to someone else – there's no happiness there.

    01 Feb 2006, 14:48

  8. Christopher Rossdale

    You also have to look at where the 'money = happiness' myth is most touted. Adverts, the Media, popular society, create the image of wealth and possession being the high road to happiness. The hype over the lottery, pictures of smiling people with their purchases, it's all geared towards creating wants. If people realised that they could be happy without all of this, and that happiness is purely subjective, and contingent on expectations, they might stop buying to fill the artificial void.

    Capitalists will see this as a problem i'm sure – if people don't want to create wealth through perpetrating these myths, then the incentive is gone, and people might just be content with what they have – obviously a major problem. As the article states, people are no happier a year after winning the lottery than they were before – one needs continuous 'fake happiness', or to find the genuine method of satisfaction. Unfortunately that's unreasonable in a society and an economy built upon incentives to purchase and the circulation and scarcity of wealth.

    01 Feb 2006, 16:57

  9. Spendature, like a gas, always expands to fill the available money.

    01 Feb 2006, 18:42

  10. Yes.

    01 Feb 2006, 18:58

  11. Capitalists will see this as a problem i'm sure

    You're right; it's a problem for particular firms and individuals. Still, a capitalist society is defined by a system of private property and voluntary exchange. A society with these institutions but no desire for goods beyond shelter and food, is no less a capitalist society.

    01 Feb 2006, 20:44

  12. Christopher Rossdale

    What sort of changes would we expect to see if material demands fell in the ways examined above?

    01 Feb 2006, 21:11

  13. There would be much fewer firms and much lower output as people shun ipods, plasma televisions and cars. Individuals would work fewer hours, choosing to spend time with family and friends. Inequality and relative poverty would persist as people differ in talent, background, and luck. And so on.

    Assuming preferences aren’t fixed, it’d in the interest of businesses to alert people of goods and services that allow existing needs be met faster/more easily/more permanently/to a fuller extent. They’d seek to chance existing preferences. For example, the Jeweller will tell people that the desire for social status is best met not by improving literary prowess as in the old days, but by wearing a sparkly ring. Microsoft will tell people that their desire to enjoy their home would be assisted by computers and software. These new goods have practical value even if they won’t increase one’s happiness. If I stole the mobile phones of everyone who has posted here, there’d be anger, but not long run unhappiness. Doesn’t mean the phone wasn’t of value.

    But enough rambling.

    01 Feb 2006, 23:32

  14. Christopher Rossdale

    Thanks! The E is the weakest part of my PPE :)

    02 Feb 2006, 00:12

  15. A very interesting article.
    Personally, I agree that money does not make you happy – I don't think anyone will disagree with this. When I was younger I used to say (I think I got this off my Dad) – "Money can't buy you happiness, but it makes being miserable a hell of a lot more bearable".

    I think that is true to an extent. The idea is that even if you're not happy, being able to surround yourself with beautiful things might take the sting out of it – or the ability to just pay to go and sit on a desert island for a week to chill the fuck out.

    Now, if you negate that statement (actually, I'm not technically negating it, but I'll leave the maths geeky stuff there), you get that no money = being miserable. This I think is much more true. It's not true for everybody, granted, but in modern society, having no money is one of the major stresses anyone has to deal with. Personally, I only just have enough money to live on, and it does get depressing – I like to eat well and drink well, but that leaves me with a hole in my budget which I fill by not buying new clothes unless they are absolutely necessary.

    I would say that 25k is a reasonable figure to be able to make that statement – it is effectively 8–10k above what I am on now (taking travel costs into account as I work in central Birmingham) and hence after moving to a slightly bigger house (I'm making the assumption that I'd have a child at some point, and hence would have to have a bigger house and also donate some of my earning towards his/her upbringing), I think I'd have slightly more disposable income than I do now, which is all I need to get to the not-worrying stage.

    Hmm – very interesting indeed…


    PS - apologies for the babbling – I'm not making much sense today!

    02 Feb 2006, 09:49

  16. Catherine Fenn

    I consider myself a happy person!

    Salary – NOT in the scale '£25K and upwards'

    Material things – ok I do own lots of stuff (but e.g. my home was bought as a renovation project back in '98 and I still consider it a work in progress…)
    I do get a 'buzz' feeling about all sorts of luxury and cutting edge stuff BUT I don't feel the compulsive need to buy it.

    Life experiences – have a life full of these with a head simply swimming with fantastic memories! (Last time I came into money I took a 'career break' and spent several months travelling the world).

    I started here at Warwick as a temp after my 'career break', which initially meant a salary drop, and I've stayed because I'm happy here.

    Conclusion: maybe it doesn't work for everyone but certainly for me all the money in the world couldn't buy me happiness. Any money I do have is far more likely go towards stuff I can keep in my head than stuff I can clutter my home with!

    02 Feb 2006, 11:58

  17. John Dale

    Now, not ever having to think about money or work – that is, being able to live off interest and dividends – is a different thing altogether. I'd love to be in that situation

    Maybe. But here's an article by Philip Greenspan – who made enough money to be able to retire when he was 37 – which argues that for many people, the obligation to have to work actually contributes to their happiness.

    02 Feb 2006, 13:05

  18. steve

    My parents support themselves easily and happily on an income of around 12K between them. Ok so they got a house (mostly) first. but i think that people have very deluded opinions on amount of money needed to be happy, as i think the answer is much closer to 0 than anyone could comprehend

    02 Feb 2006, 15:53

  19. Visiting Atheist

    One question when working out what income you need is: how many 'things' do you want? I recently looked at my stack of books, cds and dvds and ended up ebaying the lot. Okay, I didn't get all my money back but I got a bit and now I use my local library a lot more.

    We have a sort of culture nowadays where (like greed) 'spending is good' – look at all those credit card adverts and how retailers moan if we don't empty our wallets with them every Christmas (what happened to the season of goodwill?). What does it matter if one person's car costs £16k and another cost £6k, except that the latter has £10k to spend on something else that isn't depreciating massively in value that the former does not. Buying stuff is just giving your money to people for things that aren't worth what you pay for them. You wouldn't set fire to a stack of £20 notes, would you, to see if they burn?

    But… if we stop spending like we're doing now, the economy will probably implode!

    02 Feb 2006, 15:54

  20. Catherine Fenn

    KLF burned £1,000,000


    02 Feb 2006, 21:20

  21. I think I''l upset this cosy thread with a bit of crude Marxism…...

    Iyobosa Adeghe wrote on 1 Feb at 20:44

    "Still, a capitalist society is defined by a system of private property and voluntary exchange. A society with these institutions but no desire for goods beyond shelter and food, is no less a capitalist society."

    Disagree. A society based on private property and voluntary exchange is a commodity producing society. A Capitalist society is a special type of commodity producing society. A coherent definition of a Capitalist being a person or corporate body who employs non-capitalists. Our society is divided into those who labour but have little or no ownership of the means of production and those who do own the means of production.

    It's the need for Capitalism to expand which causes people's desire for endless consumption. Not the other way around.

    02 Feb 2006, 22:38

  22. Disagree. A society based on private property and voluntary exchange is a commodity producing society..

    Assuming I’m a social planner, what would I need to do to ensure we end up with a commodity producing society as opposed to a capitalist one? Is it a matter of preventing people from working for a wage, or taking ownership of all the factories and machines? Just trying to understand the distinction.

    You’re defining the system on the basis of results. Chelsea have a tendency to win football games and humans have a tendency to fight wars, but the meanings of the words ‘football’ and ‘human’ aren’t based on these things. Systems are defined by rules before players act in accordance with them. We can’t look at the results of those rules and claim that the system needs them to occur. In historical periods of negligible or no economic growth, could we really say that the system was no longer a capitalist one?

    As I said in comment 13, groups within the system have an incentive to encourage consumption, but we’re not puppets on a string. A firm cannot produce chocolate teapots and induce a desire for them at will. I don’t deny that people can be influenced, but the fact that the vast majority of new start-ups fail goes to show that individual desires can exist independent of firms.

    03 Feb 2006, 15:14

  23. There's an argument that there's never been a society dominated by commodity production which wasn't also a capitalist one. But it is possible to imagine one, say where everyone is self-employed. Perhaps that's what people mean when they talk of the "American Dream"?

    Where Capitalism has been dominant and there's been negligible or no economic growth, hasn't there always been a crisis? E.g. U.S.A. in early 1930's. Contrast with pre-capitalist economies where most people are subsistence farmers, the collectively produced things are mostly organised using a system of rights and duties, with possibly a little bit of market on the side. No real wage labour, negligible or no economic growth but no economic crisis (OK little ability to mitigate the effects of acts of nature).

    Under Capitalism, if people don't dream up things which create enough new demand doesn't a crisis result?

    04 Feb 2006, 12:41

  24. Where Capitalism has been dominant and there's been negligible or no economic growth, hasn't there always been a crisis?

    It is significant declines in demand, as seen during the Great Depression that is deemed a crisis. Businesses fail, short term unemployment rises, stock markets decline and so on. How quickly one adapts to the new level of demand depends on the business environment, employment legislation, and mobility within the region.

    Lack of growth is not generally referred to as a crisis, though it’s a concern given that such behaviour is an aberration in historical trends. Even if ‘crisis’ was the prevalent description of this state of affairs, it doesn’t follow that businesses/the press are using it in relation to underlying rules as opposed to particular groups that have been affected. Even if they were, it doesn’t mean they’re correct.

    Take the Euro zone as a whole – growth was 1.4% in 2004, 1.6% in 2005, particularly poor in the light of worldwide performance. The economic systems of European nations aren’t in danger of collapsing and intuition suggests that’d remain the case in the absence of the minimal growth that did occur. If demand for new goods were eliminated from tomorrow, the world would produce what it produced today ad infinitum, with the pattern of inputs changing as some raw materials become scarcer and technology makes some things cheaper.

    05 Feb 2006, 11:41

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