You Can Buy Happiness – up to a Point

Money and Happiness

Researchers say that you can buy happiness – up to a point.

In a new study which was led by economists Eugenio Proto and Aldo Rustichini, it was found that in poorer countries people’s life satisfaction does go up as the country’s overall wealth rises and they become better able to meet their personal needs.

Rather surprisingly, however, their increase in satisfaction has a limit:  a per capita Gross Domestic Product (GDP) of $36,000, to be exact.  After this point, satisfaction appears to actually dip just a bit in richer countries.

The GDP is one of the main indicators which economists use in judging how healthy a country’s economy is.  It is the total dollar value of all services and goods produced over a specified period of time.  The per capita GDP is this figure divided by the number of people residing within a country.

When comparing countries, economists adjust GDP for Purchasing Power Parity (PPP).  What this means is that a country’s GDP is adjusted in order to state it as an equivalent amount of purchasing power when expressed in the same currency.

According to the most recently available numbers, the United Kingdom has a per capita gross domestic product of about $37,000 when adjusted for PPP.

The researchers say their study does reveal one somewhat surprising finding, which is the fact that happiness appears to dip when countries exceed a certain amount of wealth.  They believe that the reason there is a dip in happiness is the fact that having more money creates a higher desire for even more wealth, leading to disappointment when these aspirations go unfulfilled.  People tend to want to “keep up with the Joneses” as they see more financial opportunities becoming available, the researchers say, and they aspire to having even more wealth.  But, a gap exists between what people want and what they can achieve, so their happiness levels go down.

The study also found that people living in poorer countries with a per capita GDP of less than $6,700 were 12 percent less likely to report having the highest level of life satisfaction as those countries which had a per capita GDP of about $18,000.  Once countries reached about $20,400 per capita GDP, the increase in happiness brought about by rising wealth became less.  And, between this level and the highest level – $54,000 – the chances of a person reporting the highest level of life satisfaction changed by an increment of no more than two percent.

The researchers say this corresponds to what is known as the Easterlin Paradox, which states that the association between GDP and life satisfaction is basically flat in wealthier countries.

The results of this study, however, were a bit different from previous ones in which the link either flattened or continued to increase.  In this new study, there was actually a small drop off in life satisfaction once per capita GDP breached $36,000.

The findings from the study were published in PLOS ONE.

By Nancy Schimelpfening

Purchasing Power Parity – Investopedia

What Is GDP and Why Is It So Important? – Investopedia

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