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Money and happiness: How tight the bond?
Much depends on your means, your attitude and who you're hanging with.
July 5, 2005: 1:51 PM EDT
By Jeanne Sahadi, CNN/Money senior writer

NEW YORK (CNN/Money) If you think financial success is important but you haven't quite achieved it at least not relative to those you know - here's something you might not want to think about on your summer vacation: Your desire for more money and your conviction that your life would be so much better if you had it.

It's true that those with more money (as a group anyway) register higher levels of satisfaction with life than those with less, but not by nearly as much as you might think.

For example, if you make twice what you used to make, your level of satisfaction likely would be somewhat higher, but not twice as high.

What's more, one study shows that setting financial success as a goal can itself make you somewhat less happy.

An article in Psychological Science called "Zeroing in on the Dark Side of the American Dream" looked at results from a study done on more than 12,000 people from their freshman year in college through their late 30s.

With the exception of adults making over $290,000, those who said financial success was important were less happy than those in their income groups who thought it wasn't important.

The lower a respondent's household income, the more negatively his or her happiness was affected by valuing financial success. (The negative effect became negligible for those making over $87,500.)

"If you're not making money, it's much better to be convinced it's not important," said Norbert Schwarz, a professor of psychology at the University of Michigan who coauthored the study.

It's not all about the money

Of course, few if any of us would ever say money alone is the be-all and end-all of happiness.

The Economist's 2005 quality-of-life index, which covers 111 countries, links subjective life-satisfaction surveys to objective quality-of-life measures such as material well-being, family life, political stability and job security.

By that methodology, the United States ranks No. 13 in terms of overall quality of life, even though it is No. 2 in terms of GDP per capita, just behind Luxembourg.

Ireland, which ranked fourth in the GDP-per-capita contest, tops the quality-of-life index. The research team reasoned that Ireland "successfully combines the most desirable elements of the new material well-being, low unemployment rates, political liberties with the preservation of certain ... modernity-cushioning elements of the old, such as stable family life and the avoidance of the breakdown of community."

Is it really all relative?

There's also a school of thought that says how much money you have in absolute terms isn't as important for happiness as how much you have compared to everyone else. So getting more money may make you a little happier, but getting more money than others will make you a lot happier.

When a group of MBAs were asked whether they'd rather make $100,000 when everyone around them made $120,000, or make $90,000 when everyone around them made $70,000, a majority opted for the lesser salary if everyone at the company knew about the discrepancy, Schwarz said. But if the salary discrepancies were kept confidential, about half said they'd opt for the $100,000 job.

Not to be contrarian, but I'd prefer the $100,000 job either way. And when I informally surveyed a group of people, the majority said that they also would prefer the $100,000 job, even if the salary discrepancy were known -- and yes, some even had MBAs.

Their reasons ranged from the practical (it's more money) to the philosophical (more money is better than power) to the strategic (I have a better chance of not being laid off if I'm not the highest paid; I'm more likely to get a raise; and it's a higher base from which to negotiate pay at my next job).

The few who opted for the $90,000 post -- at least if the salary discrepancy was known -- offered fewer reasons: "Cuz I'm an egomaniac;" "I believe relative wealth is a greater determinant of happiness;" and "I assume that living costs around me would reflect the prevailing lower wage."

Of course, I'd hazard an unscientific guess that whatever happiness money brought you would be curtailed if you didn't actually like your job.

I asked Schwarz, whose career has been spent in academia, how important it is for him to have money. His answer: "somewhat important."

More important, he said, is intellectual freedom. His job allows him to explore his interests. "I don't want to think about something I don't want to think about just to make more money," he said.

As for the pay, he added, "it's fine for a pleasurable life."

Jeanne Sahadi writes about personal finance for CNN/Money. For comments on this column or suggestions for future ones, please e-mail her at everydaymoney@cnnmoney.com.  Top of page

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