Money matters. Richer people are likelier to be happier, but only if they're wealthier than their neighbors.

Can Buy Me Happiness

Adding a new twist to an old claim, sociologists have shown that money does indeed buy happiness, but only as long as it keeps people ahead of their peers. In a nation where incomes rise throughout adulthood, the findings could explain why Americans buy more and more to sustain a base level of happiness.

Many surveys show that richer folks tend to be happier, but the reasons for this correlation remain unclear. According to one theory, heftier incomes buy bigger homes and fancier cars, which can bring greater satisfaction. Another idea is that happiness also depends on how one's earnings rival those of same-age peers. The trouble with most surveys, however, is that they do not address confounding factors, such as a skyrocketing divorce rate, which could mask the effects of income on happiness, says Glenn Firebaugh, a sociologist at Pennsylvania State University in University Park.

So he and Laura Tach, a sociology graduate student at Harvard University, devised a method to more clearly distinguish the real effect of money. Mining survey data from 1972 to 2002, the researchers sorted more than 20,000 working-age Americans by income and age. And by further breaking down the data, they could control for factors that influence happiness, including health, marital status, education, race, work status, and gender. Based on the number-crunching, money makes people most happy when they have more of it than you do, Firebaugh and Tach reported 14 August at the annual meeting of the American Sociological Association in Philadelphia. But bigger incomes didn't cause happiness to soar as much as good health or marriage did, the analysis found.

"It's a major contribution toward [understanding] the relationship between economic indicators and social well-being," says sociologist Fernando Rivera of Rutgers University in New Jersey. Others note that as people age, they also accrue greater expenses, such as those associated with raising and educating children. This would suggest, says Boston College sociologist Paul Schervish, that happiness could fade not necessarily because people are worse off than their neighbors are, but because they're less able to pay all the new bills.

Related sites
Tach's home page
Another perspective on income and happiness