“Money can’t buy happiness” is a very popular saying. “Whoever said money can’t buy happiness didn’t know where to shop”, generally used as a retort to the previous statement, is even more popular. That is probably not the best way to put it, but money does possess the power to make people happy for the sole reason that it provides security.
The definition of security differs from person to person. For some it means having enough food and not worrying about expenses while shopping for groceries. For some it means being able to afford a house without worrying about how they are going to repay the mortgage. Again for some it means being able to send their children to good schools and colleges. Whatever form security acquires, it is an undisputed fact that having money relieves people of the stress of sustenance.
The more money one has, the more comfortable life becomes. Comfort is not the same as luxury; comfort is anything whose presence is latent in one’s life, but its sudden absence creates inconvenience. For example, for someone who has always had the comfort of an air conditioner, spending even one night without it would seem like a great ordeal. As one advances up the income ladder, more and more commodities which were previously luxuries become comforts. As people improve their standard of living thus, studies reveal that the level of happiness also increases.
Drawing an analogy between personal happiness and the collective happiness of citizens in a country, the above argument must also mean that rich countries are happier than their poorer counterparts. This is actually true, as proved by the World Happiness Report of the United Nations. Even though money is not the sole criteria, it has been noticed that the top ranking countries are all comparatively rich, whereas the lowest ranking nations are among the poorest. But seemingly, a paradox has been observed in these rankings.
The highest ranking countries in the index are rich, but they are not the richest. In fact, many wealthier nations feature much below in the happiness rankings. Qatar, the richest country in the world in terms of Gross National Income (GNI), stood at 29 in 2019, whereas Finland secured the first spot with less than half the level of Qatar’s GNI. This may seem counter-intuitive at first, but a deeper examination of the relationship between money and happiness can explain this apparent aberration.
Consider a salaried individual who gets a bonus, and with this money buys his first car. Is he more happy now? Yes, because the additional money helped him afford a car. Now consider a millionaire CEO of a multinational company, who already possesses a fleet of cars. If he buys another car with his bonus, will it make him happy? Maybe.
The Law of Diminishing Marginal Utility says that getting more of what one already has in abundance will much less pleasure than the first time that commodity was purchased or acquired. One might ask then, why buy a car, and not a house, or a private jet? Indeed, these things might give more satisfaction to the person, but what if there is something that the person loses, which overbears the satisfaction derived from material acquisition?
Money has to be earned, and something must be offered in exchange. People offer their time, skills, services in exchange for getting money. One must work hard in order to earn money, and work harder to earn more. In microeconomic analysis, workers’ utility is calculated by observing their work-leisure trade-off. In layman terms, the level of satisfaction depends on how much people work, as well as how much they spend in leisure.
People who earn more money spend more time working, and consequently they have to forgo their leisure time, that is, time spent with family, time spent pursuing a hobby, and so on. All work and no play not only makes Jack a dull boy, but also affects his happiness. “Happiness” here does not mean how many times one smiles in a day, rather it is one’s perspective of how one’s life is going. The question that naturally comes to mind is: How far can money make one happy? What is that upper limit beyond which more money will fail to make one happy?
Nordic countries (Finland, Sweden, Denmark, Norway and Iceland) have been topping the Happiness Index since it started in 2012. These countries are undoubtedly rich, but not as rich as the US or Qatar or UAE. This year, a CNBC documentary showed interviews of Americans and Britons who have settled in Finland and Denmark, who now earn much less than they used to in their home countries, but consider themselves more content with their life.
These people have found a perfect work-life balance here that was missing in their lives previously. They work less hours, feel more happy about their work and perform more efficiently. Irrespective of their jobs and positions, each employee gets 5 weeks of paid vacation, and can even get a “stress leave”. This acknowledgement of one’s mental and emotional well-being is what puts Nordic work culture apart from the rest of the world.
The Nordic countries are a perfect example of a balanced trade-off between work and leisure. People are willing to earn less in exchange for satisfaction about the course of one’s life. There is no standard benchmark of the income level that acts as an inflection point. Money and happiness do have a positive correlation, but their relationship is non-linear, as is evident in the arguments presented.
Happiness, or well-being, is emerging nowadays as an important parameter for the development of a nation. The government of Bhutan, in fact, follows the philosophy of Gross National Happiness (GNH), which is a more holistic approach to progress. This concept emphasises on the non-monetary aspects of well-being and the GNH index has 9 domains: psychological well-being, health, education, time use, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, and living standards.
Although the application of the philosophy has not been particularly helpful for Bhutan as a nation, the idea is noble. At a time when emotional and psychological well-being are being more actively discussed and emphasised, adopting such a philosophy will only help nations like India which rank much below on the World Happiness Reports.