Does Having Money Make You Happy?

06/10/2015 11:49 | Updated 06 October 2016

It looks like there is good news for people out there stuck in the rat race and wondering what it's all about, apparently there is a connection between affluence and happiness. So don't chuck in the day job quite yet then.

The Office of National Statistics (ONS) has recently started asking wellbeing questions as part of its extensive wealth and assets survey that collects data on the distribution of property, pension, financial and other assets across UK households.

This enables statistical analysis to be undertaken to explore whether there is a relationship between the wellbeing responses - on life satisfaction, levels of anxiety, happiness and sense that activities are "worthwhile" - and the more factual information collected around a household's levels of assets.

The results suggest that there is a statistical connection: overall levels of wealth do appear to be positively related to increasing levels of life satisfaction, sense of worth and happiness. Similarly there appears to be a relationship between increasing wealth and decreasing levels of anxiety. Put all this together and it was enough for the Financial Times to suggest in a front-page article recently that money can buy you happiness.

Probing a little more deeply, however, leads to a more nuanced conclusion. First, the results of the ONS modelling show no connection between an individual's wellbeing scores and either the value of their home, or the amount of money they have saved in a pension pot. Since these are both highly relevant when considering a household's level of affluence, it begins to cast doubt on the connection - if any - between wellbeing and wealth.

However the research does show a connection between wellbeing and financial wealth, leading the researchers to conclude that "the net financial wealth of the household appears to be the type of wealth most strongly associated with personal well-being. In particular, life satisfaction will be higher in households with greater net financial wealth."

But, as I pointed out in a subsequent letter to the FT, the clue to what is really going on is in the word "net", since the ONS data allows for the possibility that financial wealth can be negative.

Indeed the strongest statistical result from their analysis is that those in the bottom quintile of net financial wealth have the lowest wellbeing scores. The ONS explains:

"net financial wealth for the lowest wealth group again has a very negative effect on people's well-being. For this group the levels of life satisfaction, sense of worth and happiness are all significantly lower than for similar individuals living in households in the middle of net financial wealth distribution. For individuals living in households in the lowest net financial wealth group, levels of anxiety are also higher which shows that for all measures of personal well-being, net financial wealth for this group has a negative impact."

But what the ONS report does not explain is that this bottom quintile corresponds to those who have negative financial wealth -- ie, more unsecured debts than they have cash, as our previous 2014 research paper Wealth of Our Nation explained.

So what in fact the research shows, is not so much that having cash makes you happy, but that having big debts makes you miserable. It is this result that dominates the rest of the data - without it, any statistical correlation would be very weak.

There is a clue to what is going on by comparing these results to the relationship between wellbeing and income. Individuals living in households with higher income do on average report higher life satisfaction and happiness, but these results, again, are driven by the lower scores for those in the bottom two income deciles. It's a classic Maslow heirarchy of needs: once you have enough, having more doesn't give you much.

However, unlike the relationship with net financial wealth, there is no connection in the data between income and an individual's "sense of worth" or their level of anxiety: for both these metrics it is the presence of debts alongside income that is more significant.

So the message to those who in the rat race is clear: earn enough money so that you can clear any troublesome debts - beyond that, you might want to think a little harder about why you are really doing it.