Can money have a negative effect on happiness?

About a year ago I was part of a liberty fund colloquium at PERC. At one point the discussion turned to the issue of how important money was in achieving happiness. I don’t recall the exact context, but I believe we had been discussing limitations of using the market system to solve environmental problems. The concern was that the market system failed to capture the full value of certain goods.

The consensus among the discussants was that happiness was one such example of when the market failed.

I had to bite my tongue when this was said. Never mind the empirical research showing the relationship between income and happiness.  I was biting my tongue because most of the discussants were wealthy individuals. The marginal dollar might have mattered little to my fellow discussants, but that was because they had not lived through poverty. Getting ten dollars can change your mood immensely when it is the difference between paying the rent or having to sleep on skid row.

I had forgotten about the incident until I read Grigorev’s story and I started to ask myself if I was happy. On second thought, happy might not be the best term. Satisfied? Comfortable? Content? Safe?

It isn’t a question I’ve had the chance to ponder on much. As a rule of thumb I spend most of my day worrying about money. When I was young I worried about whether my parents had enough money to pay the bills till the next paycheck came in. I often damned myself for not being able to work – the United States’ child labor laws are plain stupid. Even when I grew up, and my family’s finances improved slightly, thinking about money became my obsession as I took more and more economics classes. In my mind money and happiness are so strongly linked that if asked how my day is going I think about how much money I’ve made (or lost) since waking up.

After thinking about it for a week I’ve come to the conclusion that I was wrong about money’s effect on happiness. My summer job pays well enough and my bank account has never been so full. I am not happier for it though. To the contrary, I have fallen into a bout of depression. It is hard to explain, but it is what it is. After paying for the essentials (rent and food), a few luxuries, and stashing away some rainy day savings I just don’t know what to do with extra money and it makes me uncomfortable. I think I could live a comfortable life on a budget of $12,000~15,000 annually, a bit above world average income.

I knew that the effect of money on happiness was diminishing, hence my fellow discussants waving away the importance of money on happiness. I however never thought that money might have a negative effect on happiness.

For the time being I have quit my summer job and given away my extra cash to family members whose returns are still positive. Hopefully once the school year starts, and I return to being near the poverty line, my depression will be replaced by happiness.

Has anyone else had a similar experience? Or am I an outlier? Alternatively, what are you all spending your money on?

2 thoughts on “Can money have a negative effect on happiness?

  1. Money can’t buy you happiness, but they can buy things and services, which makes you happier, though I don’t think that it’s a good way to feel yourself better.

    “I could live a comfortable life on a budget of $12,000~15,000 annually” – for ones who curious, in Russia you can live a comfortable life with some luxuries, car, bills payed, 2-times-a-year-vacation with average salary ~$800-900 per month. And it’s true in big cities such as Moscow or Saint-Petersburg. In small towns it’s lower due to low prices.

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