Does money buy you happiness? How much of it will make you truly ecstatic? Pragmatic folk would answer this question with a simple ‘Yes’ and ‘As much as I can have’. But in recent years, psychologists and economists have put a great deal of statistical research into this subject and come up with complex answers.

In the ’70s, Richard Ainley Easterlin, an economist at the University of Southern California, published a study that showed that while the US per capita income rose threefold over a period of 50 years, this didn’t result in any material increase in the happiness of that nation.

In 2003, Baron Richard Layard of the London School of Economics observed that in the US, Japan and Europe, incomes rose manifold between the ’70s and ’90s, but the percentage of people feeling happy fell. But in India, Mexico and the Philippines, income increases had the effect of lifting the happiness quotient. His conclusion from these contrasting observations, was that there’s a tipping point on per capita income (he pegged it at $15,000 a year) for a nation, after which money stops making a material contribution to happiness.

He had quite an interesting explanation for this too. For those who struggle to make ends meet, even small increases in income mean a big improvement in material comforts. Money in their case is directly correlated to happiness. For the affluent, happiness doesn’t expand with the pay cheque because of two factors — ‘habituation’ and ‘rivalry’. When we splurge on lifestyle upgrades, they bump up our happiness immediately. But then, the buzz soon fades as the new lifestyle becomes a habit. Once it’s a habit, it’s the bare minimum you need to remain in good spirits. Remember the time you bought a car? You were probably thrilled when you switched from rickety public transport to your own car. But upgrading from a sedan to a SUV may not give you the same pop.

Sociologists refer to this as the ‘hedonic treadmill’. Once you’re used to a particular standard of life, there’s no going back.

Then there’s ‘rivalry’. How happy you are, doesn’t just depend on the number of zeros on your pay cheque, but also on how it compares to your peers or ‘reference group’. If your company hands out pay cuts in a tough year, you aren’t all that unhappy. But if you’re denied the bonus your teammates got, you’re gnashing your teeth.

In 2010, Nobel prize-winning duo Angus Deaton and Daniel Kahneman, came up with more insights on the money-happiness conundrum. They found, from a US-centric study, that while higher income did lift emotional well-being up to a certain income threshold, there was a satiation threshold to income. Beyond $75,000 a year, income increases didn’t make people fizzier.

In fact, the many studies questioning the link between money and happiness prompted the United Nations to commission a new World Happiness Report in 2012. It has since been published every year and has evolved a detailed framework to rate 155 countries on a happiness scale. (India ranked a lowly 122 out of 155, with a happiness rating of 4.3 out of 10).

Us Indians

But how relevant are such esoteric studies to us Indians? Most Indians have incomes that are so far below these thresholds, that they have a long way to go before they become ‘satiated’ with money. The Central Statistics Office tells us that, in 2016-17, India’s per capita income was ₹1.03 lakh, barely $1,600 a year. Even on a purchasing power parity basis, we’re at about $6,100 a year.

But it’s not the absolute numbers, but the behavioural aspects of the above studies that offer us life lessons on money and happiness. Informal chats with over a dozen people on their attitudes to money and happiness left me with some thoughts.

Beware the treadmill

A recent episode of Neeya Naana, a popular Tamil talk show, generated heavy-duty outrage on social media. The episode featured young women in their 20s making outlandish demands of their parents for their weddings. Some craved 500 dresses and 50 sovereigns of gold, others wished for ₹50 lakh to be deposited in their bank accounts and yet others talked breezily of 3BHK apartments in the city.

If you are a member of middle-class India, brace yourself. GenNext is already on that hedonic treadmill.

I put a simple question to my acquaintances from different age groups — ‘What’s the minimum level of monthly income you’d need to feel happy?’

Mid-career folks in their 40s and 50s, with dependents to boot, seemed quite satisfied with ₹60,000-75,000. At this level of income, they believed, they’d be able to meet their monthly grocery and utility bills, fund their office commute and medical expenses and even find enough spare cash to eat out once or twice a month. What more could one want?

Career women in their 30s said they needed ₹1.5-2 lakh a month to keep them satisfied. Explains a 30-year old researcher — “My salaries to the household help and food bills add up to over ₹70,000 a month. Then there are expenses on weekend trips, clubbing, eating out twice a week, credit card bills from shopping trips. It all adds up. I’d not like to cut back on this lifestyle even post retirement”.

Talk to 20-somethings and the bar is much higher. Shruthi, a top B-school graduate, takes home ₹1.5 lakh a month from her technology firm and says that this is the level of pay that makes her feel secure. Not that she is a shopaholic. “I shell out about 60 per cent of my pay cheque towards rent, salary to the cook and eating out once a week. I end up saving the rest. But today I don’t think twice about picking up some branded clothes or a new phone, and that’s how I’d like it to be”.

Monisha, a 16-year-old IIT aspirant pops a question right back at me when I ask her how much she would be happy making in her first job — “Just happy or amazingly happy?” While she’d be satisfied with a pay cheque of ₹50,000, she explains, ₹1 lakh would make her “amazingly happy”.

It’s not difficult to understand why youngsters have much higher income expectations than the middle-aged. My peers in their 40s and 50s hail from middle-class households of the ’70s and ’80s, where eating out, branded clothes, commuting by cabs and annual vacations were considered high luxury. But to their children these indulgences are already a given. For the wow factor to kick in, they need more money.

Borrowing from future

Srinivasan Sundararaman, a financial planner, confirms that his younger clients have vastly higher income expectations than his middle-aged ones. He also offers another explanation for it. They don’t have the pathological aversion to credit that their parents had. “Most young folk I advise have one or two EMIs as well as credit card debt outstanding. In many cases, even with a ₹1.5 lakh or ₹2 lakh pay cheque, their cash flows are actually negative”.

This is another facet of the income-happiness conundrum too. Older folk may like to scrimp and save for many years before they venture on that family vacation to Dubai. But youngsters don’t see any point in putting off that overseas holiday or a 3BHK home, to their sunset years. They’re all for instant gratification, even if it means borrowing from future earnings.

That may lead to an even more tenuous relationship between happiness and income. After all, if you’re slogging away mainly to pay for your past holidays, that’s unlikely to give you a warm buzz.

Social media interactions have made rivalry a potent force too. In the ’80s or ’90s, most of us weighed up our worldly accomplishments and possessions against the Sharmas next door or our college friends. But today the rat race is against hundreds of Facebook, Twitter, LinkedIn acquaintances who seem to lead far cooler, swankier and affluent lives.

Upping the quotient

So now that we’ve boned up on all the theory on the behavioural linkage between money and happiness, what can we do to up our happiness quotient?

If you’re in the early stages of your career, it may be a good idea to take your time with those lifestyle upgrades. That can help delay gratification and keep you off the dreaded hedonic treadmill.

If you’re already earning big bucks and can feel yourself becoming jaded about designer outfits and foreign trips, it may be time to turn to philanthropy. Sociologists tell us that spending our money on others or giving it away puts us in a far happier mental state, than splurging it on ourselves. Billionaires who figure on the Forbes rich list such as Bill Gates and Warren Buffett have got this all figured out. In 2014, they initiated the Giving Pledge to urge the super-wealthy across the world give away half of their wealth to philanthropic endeavours.

If you’re working 14-hour shifts or living out of a suitcase to bump up your bank balance, you should be taking cues from the authors of World Happiness Report. After distilling many decades of research on the subject, they’ve arrived at as many as six key variables to assess a country’s happiness ranking. You should note that only one of these relates to money. The variables that decide happiness are per capita income, healthy life expectancy, social support (people one can turn to in case of need), freedom of choice, generosity (philanthropy), perceptions of corruption and signs of emotional well-being such as laughter and enjoyment.

In essence, opt out of the rat race and see how you can get fit, make more friends, help out others and share a hearty laugh with friends and family. If the social scientists are right, this will eventually leave you far happier than that Lamborghini Aventador that you’ve got your eyes on.

comment COMMENT NOW