image by brendan.wood

I have to go to work.

Why?

Because I need more money.

Why?

So I can afford to buy what want.

Why?

So I can be happy.

One of my favorite ways to get to the bottom of an idea is to wield the word “WHY?” like a 2-year-old. Why? Because it gets me straight down to the heart of the matter. And the heart of our belief about money is this: most of us think that money leads to happiness like A leads to B.

But is this true? And if it is true, how true is it? Does more money always mean more happiness than less money? Or is the relationship more complicated?

We’ve addressed this question before on The Sunny Way: having more money and stuff than you need can be stifling rather than freeing. But, knowing that, the 2-year-old in me really wonders—Why? Why do we give so much of ourselves to money when it’s only capable of giving a little back?

In my wanderings around the internet lately, I’ve seen a lot of discussion around these ideas, drawing important distinctions and asking incisive questions.

J.D. from Get Rich Slowly, one of my favorite personal finance blogs, quotes James Montier’s paper (pdf) on the psychology of happiness: “A vast array of individuals seriously over-rate the importance of money in making themselves, and others, happy,” Montier writes. “Study after study from psychology shows that money doesn’t equal happiness.”

J.D. then goes on to list 13 ways to make yourself happier: getting exercise, having sex, and doing meaningful work are all on the list. Dedicating your life to making more money is not.

Penelope Trunk of Brazen Careerist sums up other research by Nattavudh Powdthavee out of the University of London (pdf) that says seeing a friend or loved one every day is like increasing your salary by $180,000, while a job that causes you to move away from friends and family needs to pay you at least $133,000 extra to make up for the lack. I am intrigued by the way Powdthavee establishes an economic value for things like relationships that don’t typically have a dollar figure attached.

Trunk also points to other studies that indicate (1)  we are notoriously bad at predicting what will make us happy and (2) what we are interested in is not just lots of money, but more money relative to the peer group we find ourselves in.

She finishes up by recommending that, in order to achieve and maintain maximum happiness, especially when facing big decisions, one should keep this research in mind by making relationships our top priority and caring a little less about our social standing.

In its discussion of recent research indicating that money and income may be linked more than we thought (pdf), the New York Times comes to the conclusion that “Some of the things that make people happiest—short commutes, time spent with friends—have little to do with higher incomes. But it would be a mistake to take this argument too far. The fact remains that economic growth doesn’t just make countries richer in superficially material ways.”

Worldchanging delves into the same paper covered by the New York Times and arrives at a more nuanced conclusion: money and happiness may be connected, but the link between them is not consumption. “It’s not about going out and buying more, but about having freedom from pain and worry, and having more days of enjoyment and more choice about what you do with those days that’s associated with happiness.”

I couldn’t agree more. Obviously, having plenty of money is a good thing, and a blessing. But we all know dissatisfied rich people, happy poor people, and many examples where too much of a good thing becomes almost as bad as not enough of it. When we overshoot the point of having enough to fulfill our needs and at least some of our wants, it’s like eating too much chocolate cake. We end up bloated, ill, and oftentimes less satisfied than when we began.

It all comes back to the fact that economic value and real value are not necessarily the same thing. Love has real value, but not economic value; expensive luxuries have economic value way out of proportion with their real value. Keeping this distinction in mind can help us gauge whether a decision or an expenditure will bring more happiness into our lives, or less.