- Money.
It's one of the most fundamental components of our society.
It affects how we act, how we feel,
and how we spent 80,000 hours of our working lives.
But one of the biggest myths about money
is that we think that more money leads to more happiness.
We think that getting a raise at work,
or getting the sweet video sponsorship dollars
is gonna make our lives better.
But is it really that simple?
How important really is money to happiness?
This is one of the questions
I've been thinking about a lot recently,
especially as I started making money as a junior doctor
and now as my income has increased,
thanks to this YouTube channel
and the businesses that go around it.
And when you're on this train of trying to get more success
and trying to make more money
and trying to get more followers and more views or whatever,
it's easy to have that view that like,
"I just need to make more money
"and then my life will be sorted and then I'll be happier."
But if you're anything like me
and you enjoy reading pop psychology books
and listening to interviews with celebrities
who are rich but miserable,
then you'll know that this relationship
between money and happiness is complicated.
So the thing we're gonna investigate in this video is,
does money actually buy happiness?
Part one.
Yes, money does buy happiness.
Now, I'm gonna cheat a little bit here
and I'm gonna include a one minute segment
from Casey Neistat's amazing video essay
where he talks about how money does buy happiness.
- Rich or poor, we all face these problems.
Problems that I'll call life problems.
Life problems are things like finding happiness,
and finding love, and a sense of fulfillment in your life,
and a sense of purpose maybe in your career, et cetera.
These are life problems.
These are problems we all, rich or poor encounter.
Money won't solve these problems.
But when you're broke on top of,
and I mean that literally and figuratively,
on top of these problems, you've got money problems.
And money problems are things like,
"How am I gonna pay rent?
"How am I gonna pay for food?
"I'm sick and can't afford to go to the doctor.
"I can't get a job so I can't drive to work.
"I don't have any nice clothes
"to wear to that job interview," things like that.
- And he goes on to say
that if you have these money problems,
then they literally drown out
all of the other life problems.
And so if you have no money,
then money literally does buy happiness
because it solves your problems associated with money.
And so if we draw a graph of money versus happiness,
it starts to look a little bit like this.
But then we come to an interesting question
which is what is the upper limit here?
Does money continue to buy happiness
or is there a point beyond which having more and more money
doesn't actually lead to more and more happiness?
Part two, to what extent does money actually buy happiness?
Now, there's been a lot of studies
that have tried to figure out this point of enough,
like how much money do you actually need to be happy
beyond which kind of further money
isn't actually gonna increase your happiness?
But the study I wanna draw your attention to
is one from 2018 published in the Paper Nature,
which is one of the world's most respected publications.
And these guys looked at data
from 1.7 million people in 164 countries.
So this is a lot of data
that we have to help answer this question.
And if we look at the data in this paper,
it shows us that there are three possible answers
to the question of, does money buy happiness?
Number one, does money buy happiness?
Well, it depends on how you define happiness.
So how do we actually define happiness?
All right, so if you look
at these various social science studies
that have been done investigating the idea of happiness,
essentially, they don't call it happiness,
they call it subjective wellbeing
because the actual definition of happiness changes
depending on who you are.
And there's also a couple of different ways
of measuring subjective wellbeing.
One of which is this idea of life evaluation.
If you're trying this out for yourself,
I want you to imagine a ladder
with the steps labeled zero to 10,
where zero represents the worst possible life
and 10 is the best possible life.
Where would you rate yourself on the scale of right now?
This is called Cantril's self-anchoring striving scale,
for whatever that's worth.
And this is one way of measuring someone's life evaluation.
Now, interestingly, if you draw a graph
of people's kind of life evaluation
and you compare it with their kind of household income,
you get this very interesting kind of shape.
And you do get a point beyond which people
who have more money are not saying
that they would rate themselves higher
in terms of life evaluation.
And on average, that point is about $85,000
if you look at all of the different countries they studied.
But apart from life evaluation,
there's another way that psychologists
and people who study this thing measure happiness.
And that's the idea of affective or emotional wellbeing.
Now it's quite hard to accurately assess
your own emotional wellbeing.
And so what they do is that they ask questions like,
"In the last week, how often did you laugh?
"How often did you smile?
"How often did you experience gratitude?"
And they also ask questions like,
"Yesterday, were you unhappy?
"Were you stressed?
"Were you anxious?
And so they get a sort of combination of positive
and negative emotions and turn it into a number.
And simplifying all of this stuff,
it gives us a score for someone's emotional wellbeing.
Now, if you graph people's household income
against their emotional wellbeing,
you find that, again, there is a linear relationship,
but the cutoff point,
the point beyond which more money
doesn't lead to more emotional wellbeing,
is about $55,000 per household.
And we can imagine why this might be.
Like if you imagine your best possible life,
then usually you can imagine having
a higher standard of living than you currently do
which is why you probably need more money
to kind of (indistinct) that like life evaluation thing.
Whereas if you imagine emotional wellbeing,
we can all appreciate that that's probably based
on things other than your career success,
or your salary, or things like that.
And far more about things like relationships,
and your hobbies, and the things that bring you enjoyment
and fulfillment in your life.
Point number two, does money buy happiness?
Well, it depends what country you're in.
So earlier I said that the average point for life evaluation
beyond which money stops buying happiness
is about 85,000 US dollars,
but this varies massively depending
on which country you're in.
So if you look at the paper,
they've done this for all the different countries
that they looked at.
And they found that in Western Europe and in North America,
I'm in Britain, which is in Western Europe,
the kind of satiation point
for how much money no longer brings you more happiness,
is about 100,000 to 105,000 US dollars.
In Southeast Asia that number is about $70,000
and in Latin America and the Caribbean it's about $35,000.
Point number three, does money buy happiness?
Well, it depends on how many people you're looking after.
Now, obviously if you're earning $50,000 as a single person,
that is a very different thing
than if you're earning $50,000 to support a family of four.
And so usually when they do studies like this,
and certainly in this Nature Paper that they've done,
these numbers that I've quoted for the video so far
are all based on being a household of a single person.
So if you're a single person household,
your satiety p@oint in Western Europe
is about a hundred thousand dollars.
But the way they control for different people in a household
is you take the number of people in the household
and you square root it
and you multiply it by that household income.
And so if you're a household of four people,
square of four is two,
two times a hundred thousand is 200,000,
and so your point beyond which money stops buying happiness,
again, if you look at the sort of large population of data,
your point will be about $200,000 compared to the $100,000
for someone who's just a single person household.
But I think the interesting thing about all these studies
isn't really the point at which you have this
because these are all like,
it's all based on so many averages
and so much population level data.
And we're not saying that,
hey, if you're owning a hundred thousand dollars,
if you were to double your salary
it wouldn't make you happier.
It's just that on average, people with a salary of $200,000
are no less happier than people with a salary of $100,000
because they've hit that point of satiation.
And so the overall answer to our question
of does money buy happiness is that,
yes, money does buy happiness
but only up to a certain point.
And I think understanding some of the reasons
why this might happen is really helpful
because even if we're not at that satiation point
of a hundred thousand dollars or whatever,
we can still learn a lot of lessons
about why more money doesn't bring more happiness
beyond that point.
Part three, beyond the point of sotiaty,
why does more money not necessarily lead to more happiness?
This I think is an interesting question
and there's lots of different answers to it.
But one of the answers, and a big part of the answer
is something called hedonic adaptation.
Hedonic adaptation is the famous idea
that we all have a tendency as humans
to quickly return to a similar level of contentment
even after major positive or negative changes in our lives.
There's actually been a few famous studies on people
who won the lottery, like won loads of money in the lottery
like tracking their happiness before and after,
and they found that after a while,
like they actually very quickly returned
to more or less baseline levels of happiness.
And we've all definitely had this experience
anecdotally as well.
Like for me, a few months ago in September of 2020,
I bought a Tesla Model 3,
and yeah, for the first few weeks it was like,
"Oh my God, I'm driving a Tesla.
"It's like really comfortable and super nice."
But now when I drive it it's still nice
but like it's now become the new normal.
And so I don't get as much pleasure from it
as I once did back in September when I first had the car.
But do I regret buying the car?
Absolutely not, I think it's great.
And I knew very well
that I was gonna hedonically adapt to it.
And so given that I know that that is like
a fundamental aspect of human psychology,
it means that when I get into the car
or when I just kind of live my life in general,
I can make it a point to be more grateful
for the things that I do have.
And so when I'm getting into the car I can think,
"You know what?
"This is a pretty sweet car."
So hedonic adaptation is one reason
why money doesn't buy happiness beyond a certain point.
But another part of the answer is the idea of comparison.
The famous British economist and philosopher,
John Stuart Mill, once said,
"Men do not desire to be rich,
"only to be richer than other men."
This idea has been confirmed by lots of studies
and it's called relative deprivation
which essentially explains
that our happiness usually depends on comparing ourselves
with our friends and colleagues.
And so because we all have this tendency
to compare ourselves with our peers,
like our actual happiness based on our income
and how much money we have,
isn't actually tied directly to the money itself.
It's tied on how it makes us feel relative to our friends.
So if all of my friends were earning 20,000
and I'm earning 50,000, I'm gonna be feeling pretty happy
about that because that's just how human psychology works,
unfortunately.
But if I was earning $200,000
and all my friends were earning $500,000,
I would feel pretty bad about that.
And studies have shown that I'm more likely
to think of my life as being less happy and less meaningful
because of that comparison.
And so bearing this in mind,
this tendency that we all have to compare ourselves,
and comparison is the thief of joy.
And anytime we compare ourselves to anyone,
we're just likely to either feel superior, which is bad.
But also if we compare ourselves to people
who have more than us, we're likely to feel inferior.
And I think just keeping that in mind
and just not letting ourselves make these comparisons
is generally the way forward.
And so for me, I find that if I'm speaking to someone
who's got like a $10 million business,
I would feel tempted to feel a little bit jealous of that
I'll be like, "Oh, you know, that must feel really cool."
But then I have to consciously remind myself,
"No, no, no, this whole comparison thing is bad.
"There's no point doing any comparisons
"because it's just not good."
And actually for me,
over the last few months I've interviewed a lot of people
who have like huge businesses
and who are very kind of monetarily successful.
But I've also interviewed people
who could have big businesses but are actively choosing
to keep things a little bit more small and manageable.
And this is something I talked about with my friend,
John O'Nolan, who is the CEO of Ghost,
which is the company that I use to host my website,
about why he's deliberately kept Ghost small
and isn't really optimizing for growth at all costs.
- I evaluate people based on how happy they are
more than how much they make.
I think I know a lot of rich, unhappy people.
- Okay.
- I know a lot people who sold their companies
and became very financially successful
and they're very, very depressed.
Because if the company was something they loved
and they sold it and they got rid of it
and now they have lots of money but they played the game,
they bought the Lamborghinis,
and sure enough, the thrill of that wore off a lot faster
than they expected.
And now they're bored left with the existential question
which has gone unaddressed which is, what do you do now?
And I've seen that pattern play out so many different times.
So for me, I care more about the freedom I have.
That's what I really optimize for.
So I would say to you now, try not to compare yourself.
Go for the goals that feel meaningful to you
versus the goals you see other people going for.
Because the worst thing you could possibly do in life
is strive to achieve someone else's definition of success
and only to arrive there and realize that it's not yours.
So yeah, that would be my take.
- So those are a few things I'm constantly reminding myself
to keep in mind when I'm thinking about,
"Do I wanna try and make more money
"or do I wanna optimize for happiness instead?"
And actually it was this book, Your Money or Your Life
by Vicki Robin
that really helped me change my own relationship with money
and stop focusing so much on making more of it
and instead thinking about things like meaning
and fulfillment instead.
If you wanna see my summary of this
where I talk about my thoughts and feelings about this book
that changed my relationship with money,
click the link over here.
That'll be my book club episode.
If you don't wanna read the book you don't have to,
you can just watch that video.
Thanks for watching and I'll see you the next one.
Bye-bye.
(calm music)