Life on the West Island - Money and happiness

It’s one of the oldest questions ever asked, at least since Roman times: can money make you happy? And if so, how much? Now a West Island researcher has studied these questions and come up with some conclusions.

Dr Brad Elphinstone is a Senior Lecturer in Psychology at Swinburne University of Technology. In a recent research paper, he studied income levels and wealth distribution on the West Island and in the United States, looking at what might be the monetary amounts where people feel happiest. He began by considering incomes of high wealth individuals in both places. Dr Elphinstone wrote:

Over the next decade, Elon Musk could become the world’s first trillionaire. The Tesla board recently proposed a US$1 trillion (A$1.5 trillion) compensation plan, if Musk can meet a series of ambitious growth targets.

Australia’s corporate pay packets aren’t quite on that scale. Yet even here, on Friday it was reported departing Virgin chief executive Jayne Hrdlicka will collect nearly $50 million in shares and other cash benefits on her way out the door.

Research from the United States suggests people think the average CEO earns ten times more than the average worker – and would prefer it was closer to only five times more. In fact, the real gap in the US over the past decade has been estimated to mean CEOs earn a staggering 265 to 300 times more than average US workers.

Australians think CEOs earn seven times more than the average worker and would prefer if it was only three times more. But the real gap here is also much higher. A long-running study found CEOs of the top 100 Australian companies earned 55 times more last financial year than average workers.

Do these massive incomes ensure that the individuals receiving them are happier and living much more fulfilled lives? Not necessarily. For instance, we can go right back to the ancient Greek philosopher Aristotle, who theorised that accumulation of wealth and material goods was not the recipe for living well. He said that a satisfying and fulfilling life… belongs more to those who have cultivated their character and mind to the uttermost, and kept acquisition of external goods within moderate limits, than it does to those who have managed to acquire more external goods than they can possibly use, and are lacking goods of the soul.

Elphinstone takes a more prosaic view, and tries to put a figure on what might make modern West Islanders happy. He quotes a detailed American study from 2010, which indicated that the measure of individual happiness plateaus at an income of around $US75,000, which adjusted to 2025 would be approximately $US110,000 or $A165,000.

However, Elphinstone concedes that…other findings suggest wellbeing may continually increase with growing wealth, but the increase in wellbeing from $1 million to $10 million is likely less than when someone moves from poverty to middle class.

The researcher looked at another large experiment where 200 random people from Brazil, Indonesia, Kenya, Australia, Canada, the United States and the United Kingdom were each given the equivalent of $A15,000 in cash to use in any way they chose. Its main finding was that people in lower income countries exhibited happiness gains three times larger than those in higher-income countries, including Australia. But that cash still provided detectable benefits for people with household incomes up to US$123,000 (roughly A$184,000). Perhaps remarkably, the people in that experiment gave away more than two-thirds of the money to family, friends, strangers and charities.

This prompted Elphinstone to ponder on the relationship between money and happiness and/or wellbeing:

Decades of international research have consistently shown materialistic goals – acquiring wealth and possessions for reasons associated with image and status – undermine wellbeing.

This is because materialistic striving is often born out of low self-esteem or tending to compare oneself negatively to others - and there is always someone else to compare yourself against. People can get stuck on the “hedonic treadmill”, where they get used to their new level of wealth and the luxuries it provides and then need more to feel happy. It’s also because the work needed to acquire that wealth can mean less time focusing on hobbies and with loved ones. Harvard research tracking two generations of men and their children over their lives, going back to 1938, shows deep, meaningful relationships with others are key to mental and physical wellbeing.

American psychologist Abraham Maslow developed a “hierarchy of people’s “needs” in 1943. This suggested “self-actualisation” – reaching your pinnacle of personal growth – starts by having enough money to cover the basics of food, shelter, and access to the opportunities needed to grow as a person. In line with this, research has shown “time affluence” (maximising free time by paying people to do things you don’t want to) and “experiential buying” (for example, meals out with loved ones, going on holidays) can support wellbeing by helping people develop new skills, build relationships, and create lifelong memories.

So, what does this mean for all of us? How much income and wealth would make you, or the average West Islander happy? $165,000 a year? Maybe $250,000 or even a million dollars? Or perhaps there is more to happiness and living well than just money – family, community, generosity and coming to agreeable terms with oneself, for instance. We live in a capitalist society, where money is at the centre of much of our lives and our governmental decision making. But sometimes it is worth pausing to consider – what must we do to really makes ourselves happy?