In their forthcoming book How To Fund The Life You Want, Robin Powell and Jonathan Hollow focus on happiness and purpose as the drivers to save for the future. But does that work in the tough times we’re living in? JONATHAN HOLLOW reflects on the lessons from the book.
It’s a well-known saying that money can’t buy happiness. The reason this cliché endures is that it has a grain of truth in it.
But it’s not the whole story, and especially not for the times we live in.
In our forthcoming book, Robin Powell and I looked at the academic evidence about money versus happiness. Our book starts from a very clear premise: the money you need in retirement is never an end in itself. Your life is the end, money is the means. Only if your life has purpose, will your money have purpose too.
But news right now is filled with deep concern about millions of people in the UK having too little money to heat their homes and buy food to eat. Martin Lewis, the UK’s “Money Saving Expert” is warning of a mental health crisis occasioned by just the prospect of 80% increases in energy bills, let alone the hard reality.
How can anyone say that more money will not make these people happier?
The money/happiness plateau
In 1974, the economist Richard Easterlin published a landmark study. He showed convincingly that although the material wealth of the United States had been improving for decades, its levels of happiness had reached a plateau. They had barely changed at all. Which raises some a profound question, one that is still with us: if economic growth doesn’t bring happiness, why should governments pursue it?
Further studies demonstrated something apparently pointing in the opposite direction from Easterlin, but which resonates with our common sense: that wealthier societies are, generally, happier than poorer societies.
What was going on? It’s all about the difference between richer and poorer countries. Further studies have anatomised and synthesized this information very well. As Janusz Czapiński of the University of Warsaw put it in 2013: “In poor societies and individuals, income affects wellbeing, but in wealthy societies and individuals, the direction of the relationship is reversed: wellbeing determines income. Money buys happiness when income is too low to satisfy basic needs, and happiness brings money when income satisfies basic needs.”
Or to put it more simply: up to a certain point, money does buy happiness, but after your everyday living needs are satisfied, more money does less and less for you.
Some intrepid academics used Gallup poll data from 1.7m individuals around the world to put a price on this. They estimated that for individuals to feel happy “in the moment”, they needed an annual income of between $60,000–$75,000. Then for them to feel safe, secure and happy when they looked at their lives from a longer-term perspective, the amount topped out at $95,000. (These were all in 2018 dollars.)
It’s always strange when something so intangible as the money to happiness ratio is reduced to black-and-white figures. But they don’t look too crazy to me.
The soaring cost of basic needs
All this leads me to some reflections on the situation dominating the news today:
- Given that the median after-tax income in the UK hovers just above £30,000, there was, even before the current crisis, a huge gulf between the “satiation” income hypothesised above, and most people’s everyday lives.
- The cost of a basic need (energy) is soaring, and food will surely follow.
- Because of the crisis in energy costs, the UK is currently beginning to feel like a poorer, middle-income country. It has been a very long time since so many people had such a large chunk of their income swiped to fulfil a basic need. An energy company boss has claimed that it is equivalent to a 9% increase in the basic rate of income tax.
The evidence suggests that for more and more people, the lack of money, and the deteriorating value of the money they have, will surely lead to unhappiness, stress and mental health problems.
Time, relationships and connection
In the early chapters of our book, we look at the evidence of what generally does make people happy. Although we are careful to steer well clear of spiritual guidance, the evidence we looked at strongly suggests that the themes of time, relationships and connection are the important things everyone, religious or not, should plan into their future lives.
I don’t have time to rehearse all that interesting evidence from multiple academic authors here (of course, I recommend that you order our book!), but a few highlights for me were:
- Time is so important because at its very best it can be “filled with personal meaning”.
- Unlike money, time can’t be replaced.
- Joint investment of time with others builds connection, and this connection is a strong driver of happiness.
- Societies that fulfil people’s basic needs find themselves “freed up” to build stronger connections between people. These connections in turn spur economic growth, in a virtuous circle.
All of these, especially the last, have lessons for the current situation facing the UK. A society in which our neighbours can’t protect themselves from the cold, or feed themselves properly, will make none of us happy and most of us poorer, however insulated we ourselves may be from the cold.
Or almost none of us. There will be some who for whatever reason will not consider money to be the means that supports a happy, pro-social life, but an end in itself.
Perhaps a capitalist society needs a sprinkling of these people to keep its engines running. But I believe it needs much more than that in the values of the people that lead it.
JONATHAN HOLLOW worked for the UK Government’s Money and Pensions Service and is a writer and commentator on consumer education and protection.
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