Grandma was wrong, money can buy you happiness!

Aug 15 2005

According to sociologists in the U.S., people who are financially rich are happier than poorer people.

Now this will come as a terrible blow to the many poorer folks out there who convince themselves, on a daily basis, that the rich are no happier than the poor, but just look better at not having a good time.

Glenn Firebaugh, a sociological researcher at Pennsylvania State University, and graduate student Laura Tach of Harvard University, decided to test this theory and focused their research on whether the income effect on happiness results largely from the things money can buy (absolute income effect) or from comparing one's income to the income of others (relative income effect).

Firebaugh says that, in evaluating their own incomes, individuals will inevitably compare themselves to their peers of the same age, so a person's reported level of happiness depends on how his or her income compares to others in the same age group.

By using comparison groups on the basis of age, the researchers have found evidence of both relative and absolute effects, but relative income is more important than absolute income in determining the happiness of individuals in the United States.

Apparently this may result in a self-indulgent treadmill, because incomes in the United States rise over most of the adult lifespan.

Firebaugh maintains that if income effects are entirely relative, then continued income growth in rich countries today is irrelevant to how happy people are on the whole.

So instead of promoting overall happiness, continued income growth could promote an ongoing consumption race where individuals consume more and more just to maintain a constant level of happiness.

By using a comparison of age-based cohorts, Firebaugh tested what he refers to as the hedonic treadmill hypothesis.

The hedonic treadmill requires a specific type of relative income effect, one where "keeping up with the Joneses" means continually increasing one's own income, because we are convinced that the Joneses are increasing theirs.

Using data analysis from the 1972-2002 General Social Survey, the researchers' measured the age, total family income, and general happiness of 20- to 64-year-olds.

Happiness was measured using a self-report response of "very happy," "pretty happy," or "not too happy", and they controlled for health, education, effects of getting older, race, and marital status.

Firebaugh's data found that, while income was important in determining happiness, physical health was the best single predictor of happiness, followed by income, education, and marital status.

The researchers found a relative income effect, the richer you are relative to your age peers, the happier you will tend to be.

Firebaugh says they found that, with and without controls, for age, physical health, education, and other correlates of happiness, the higher the income of others in one's age group, the lower one's happiness.

Families whose income earners were in jobs with flat income trajectories were likely to become less happy over time, so the relative income effect observed here implies adverse effects for some individuals over the working years of their life cycles.

The American Sociological Association, is currently celebrating its centennial year.

It is a non-profit membership association dedicated to serving sociologists in their work, advancing sociology as a science and profession, and promoting the contributions and use of sociology to society.

The sociologists presented their research in a session paper, titled "Relative Income and Happiness: Are Americans on a Hedonic Treadmill?," at the American Sociological Association Centennial Annual Meeting on August 14.