Page last updated at 06:49 GMT, Thursday, 28 January 2010

Happiness revisited: Does money make us happy after all?

By Tim Weber
Business editor, BBC News website, in Davos

laughing woman
Is she truly happy? What's her bank balance?

Remember what mother told you: "money doesn't buy you happiness."

Turns out she was wrong.

Recent research seems to suggest that money can make you a happier person after all.

That, of course gets economists rather excited: maybe we could measure the economics of happiness? If possible, it would make politicians happy too.

So where better to pursue the problem than the World Economic Forum, for one week the playground of the rich and famous.

There's just one problem: While the Davos millionaires and billionaires have a good stab at looking very happy (bankers excluded), they are finding it rather difficult to define happiness, never mind measure it.

Of course, nobody in Davos would admit that money makes them truly happy - except one exasperated participant, who ascribed this quote to Richard Branson: "I've been poor and now I'm rich, and rich is better" (although the quip has also been tagged to numerous other people).

Happy after all

It's not the first time Davos is tackling the subject. Five years ago, after an identical session, I explained "why money doesn't buy happiness" . The reason: if everybody is richer, nobody feels richer - and thus not happier either. Or put it this way: If you have $1m, you might be envious of the guy across the road who has $2m.

Bill Gates smiling
He's got money, but is he happy?

Except the theory was probably wrong.

Higher gross domestic product (GDP) usually means better education, lower child mortality, generally a better life - and in turn measurably higher happiness, explained one of the economists at the session.

The hitch: more money can not yield ever higher returns, because there is only that much longevity, literacy or better health that money can buy. If you were to measure the higher levels of happiness that money achieves, the curve would simply level out.

Happiness is also something very subjective. Friendship may be the benchmark for young people. Having enough money to raise a family will be key for people in their thirties. Good health equals happiness for those in retirement.

Anyway: how do you measure love, friendship, fulfilment asked the economist, while another quoted Robert Kennedy: Gross domestic product "measures everything ... except that which makes life worth living".

Selfish and unhappy

And that's probably why the Davos crowd found it tricky to get to the bottom of the issue.

laughing youngsters
No money, but still happy?

Maybe there is indeed a point at which money makes you decidedly unhappy.

One Harvard MBA told the session how making money did not make her happy, but created stress to make even more - until she quit the rat race.

What about those villagers in Nepal, where I lived for a month, asked one young participant: "They had no GDP, no education, zero cash, a short life span, but they were the happiest people I ever met."

Maybe the dividing line between happy and unhappy is between selfish hedonism and compassionate altruism, said another participant.

"Money doesn't buy you happiness, unless you give it to others," he argued (but then he is a Buddhist monk).

Unhappy bankers

The money vs happiness discussion is not just frivolous. It may be at the heart of the current financial crisis, argued one hedge fund manager.

The bankers simply suffered from compensation envy as they watched their colleagues in the hedge fund industry rake in the money. So the banks dramatically increased their leverage - borrowing ever more money to invest.

For a while, it resulted in great pay packets, until the bubble burst. Greed was not so good after all.

It all made for an animated discussion, albeit with little outcome.

Once again it was left to an economist to make the key point: "Happiness is very transient. Enjoy it while you are."

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