The mathematical formula that reveals to what extent money brings happiness – 02/08/2023 – Market

It seems obvious to some people that more money means more happiness. But the truth is, once basic needs are met, things can take a surprising turn.

Our emotional relationship with income, debt, and financial loss is complex and nuanced.

Evidently, money has great power and can influence people’s decisions and actions, in addition to being an effective way to solve problems, especially in times of crisis.

Money is “an enabler for people to live a decent life”, summarizes Jan-Emmanuel De Neve, Professor of Economics and Behavioral Sciences at the University of Oxford.

But according to research, having more money makes less of a difference in terms of happiness as people get richer.

The relationship between higher income and more happiness is “logarithmic”, explains De Neve.

For example, if your salary suddenly doubles from R$8,000 to R$16,000, you will be very happy. So far, nothing surprising.

But if you want to get the same degree of increase in happiness and well-being again, another $8,000 increase won’t be enough. You’ll be happier, but not as much.

To experience the same emotional reward, you’d need to double your income again, so if $16,000 made you happy, you’d need to double your income again, reaching $32,000. And then again to BRL 64 thousand, BRL 128 thousand and so on.

Ad infinitum?

Despite the logarithmic relationship between money and happiness, it is important to make a caveat.

Research has shown that after a certain threshold, it would be a waste of time to continue trying to double your salary. In the United Kingdom, for example, this limit tends to be R$ 64,000.

Not many reach that level of income. But those who do hit what Professor De Neve calls “a ceiling” above which they “will no longer detect a statistically significant relationship between having more money and more life satisfaction.”

Happiness is not so easy to buy.

The most important thing is to have money to meet basic needs (food, housing, health, etc.).

But beyond that point there are a number of factors that contribute significantly to people’s well-being that are not necessarily tied to money.

Mark Williamson, director of the charity Action for Happiness, identified some of them:

• Cultivate good relationships within the community (family, friends, co-workers);
• Being part of something “bigger than ourselves”;
• Be resistant to difficult or uncontrollable situations;
• Having autonomy (control over one’s life choices).

In some countries, these factors are used to calculate the level of well-being of the population.

De Neve —who is one of the authors of the UN Report on Happiness in the World— says that living in a more egalitarian society is a fundamental factor for the general level of satisfaction of the inhabitants.

According to the report, Scandinavian countries are always at the top of the rankings. For the specialist, this suggests that welfare states provide “a kind of psychological security”, with greater confidence of the population in the fiscal plans of their governments.

Losses

Another interesting psychological quirk about money is that we hate losing money more than we enjoy making it.

While the formula of diminishing emotional returns is true when we make more money, the opposite is true when we lose money.

Loss aversion, as it is known in behavioral economics, has been measured in several studies.

According to De Neve, “well-being is twice as sensitive to a loss of income or purchasing power compared to an equivalent gain”.