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Does Money Buy Happiness? Up To A Point

Both individuals and nations as a whole get a little happier once they stop being poor. But true happiness depends on more than wealth.

[Source photo: extradeda via Shutterstock]

As nations become richer, they tend to become happier. But only up to a point. At a certain level of wealth—when our basic needs are met—people cease becoming happier overall. Money leads to happiness, but not always.

In happiness economics, this phenomenon is known as the Easterlin Paradox, which was first used to explain why Americans were not becoming happier in the 1970s, despite rising incomes. And you can see it at work around the world in a major new international survey.

The Pew Research Center interviewed people in 43 countries and found a strong correlation between increased wealth and reported happiness. Many emerging nations are a good deal happier now than they were seven years ago, when Pew last asked them. For example, life satisfaction in China, where GDP has increased by an average of 10% since 2007, grew by a whopping 26%. But then there's little difference in life satisfaction in China and Germany, despite big differences in income per person. And rich countries like the U.S. and France have seen no difference since 2007. In fact, in several high wealth countries, the percentage of people reporting the highest levels of happiness (7, 8, 9 or 10 on a scale of 1 to 10) has actually declined slightly.

Here's a chart plotting life satisfaction on the vertical axis and GDP growth since 2007 on the horizontal axis. Advanced economies are in brown, emerging economies are in yellow, and developing economies are in gray. As you can see, China is far out to the right hand side:

Now look at this chart plotting actual income per person. You can see that the U.S. is way out to the right as the richest country on Earth. But it's far from the happiest country. Israel, Venezuela, and Mexico, for example, all have lower incomes per person, but more people reporting themselves highly satisfied (7 to 10 on the scale).

The survey matches U.S. research showing that happiness improves little after people start making $75,000 a year (the exact number may vary by state, with people in Hawaii needing much more than people in Mississippi, according to one study).

In general, the Pew research found that women tend to be happier than men, and that people with higher incomes, education, more household goods and employment are happier than those with lower levels. Also, married people and younger and older people were happier than single or middle-aged people.

See more results here.

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