Things We think make us happy : Money

Because it seems when we’re talking about getting a good job, one of the goals we’re going for isn’t really the good job, is getting lots of money. It’s having wads of Benjamins where you could just go wherever you want and do that. We know this not just from what people are applying for in terms of their jobs. We know this in terms of how people spend money to try to get money. I’ll give you one quick statistic. This is U.S. lottery spending in 2015. Anybody want to venture a guess in U.S. dollars, how much people spend on the lottery in general? No guesses. $10 billion. $10 billion. Actually seven times that. It’s $70 billion.

And just to give you a sense of what that means, this is combined more than people spend on books, music, movie tickets, sports teams, and video games combined. So, this is like most forms of being excited about things around like people are spending on lottery tickets, why? Presumably, not because the lottery tickets are fun. Presumably, is they’re getting, they’re hoping to get more money. They’re hoping to get lots of money. Those are just crazy people who spend money on lottery tickets.

But can we see that sort of thing in you guys, in Yale students? Particularly in freshmen, we can look at that by looking at this one cool survey that researchers have done for a long time, which is known as the American Freshmen Survey, which looks at national norms every couple of years. This’s been running for a super long time. They surveyed, they’ve been surveying freshmen since 1967 and this is still running. The last published doc is from 2005 and this is a really big cohort. So, this is just the 2005 numbers are over 200,000 people from almost 400 different schools. It’s getting a real swash of what people want.

And so, we can ask, how much does money matter to the American freshmen today? And if you ask not about money particularly, but just asking about what’s very important to you in life? What you’ll find from most freshmen in 2005, is that they say that what’s important in life is to be very well off financially, 71 percent. And you could imagine maybe freshmen say everything’s important. So you say, how important is relationships? How important this? They say, “That’s very important.” They just think everything is important. But they don’t. If you ask, for example, how important is it to develop a meaningful philosophy on life? Only about half of freshmen think that that’s true. The interesting thing for me, thinking about you guys today, and some of the problems you guys experience today, is that if you look at the rates from 1967, they’re kind of flipped. So, only for about 40 percent of people thought you need to be very well off financially back in the 60s. But a lot of them thought you needed to develop a meaningful philosophy on life. So, again this interesting flip about how important finances are. And that raises this question about whether or not, money is really going to make us happier?

Having a bigger income is that actually going to help us. Luckily, lots and lots of work on this. Does in a bigger income increase life satisfaction? And a lot of the work has been done by this cool psychologist, Ed Diener. Who has this nice book on Happiness, Unlocking the Mysteries of Psychological Wealth. And there’s a hint there, is psychological wealth not financial wealth. Diener has done all these cool studies, trying to look at what the correlation is between your income and life satisfaction. Because some of you aren’t scientists, quick primer on what correlation means. Really, what we’re going to do is plot out everybody who writes back to our survey, what their income is, and some measure of how satisfied they are with their life. And we’re going to see if as income goes up, does life satisfaction go up.

And we’re going to get a different correlation. We could get a correlation like this. Which is like it’s super tightly correlated. Every time your income goes up, your life satisfaction goes up. For stats people in the audience, this is a super strong correlation, 0.99. Could be a little weaker, this is what a 0.75 correlation looks like. This is what 0.50 correlation looks like. Here’s what a 0.25 correlation looks like. And you can see, this is correlated. It means as income is going up, life satisfaction is going up. But you couldn’t ever tell from somebody at a particular income, where their life satisfaction is. If your income up here, maybe your life satisfaction is over here, and maybe over here. There’s all kinds of other things affecting it. That’s 0.25 correlation. So, what’s the real correlation for actual income and life satisfaction? We can look at this from two different worldwide samples. One is this thing called the World Values Survey, which surveys adults across many, many different countries. The other is a college survey across college students, many many different countries. And here is all the different correlations. Here’s the most relevant one down here, which is the mean of all them. Basically, the correlation is about a 0.10. It’s half as strong as that last correlation you saw where the dots were all over the place. So, yes, there’s a correlation, but it kind of doesn’t map on as well as we think.

You can also look at this by look, if you parse the correlation now between the different countries that we’re talking about. And if you do that, you see an interesting pattern, which is that the correlation across life satisfaction and family income. Now, they’re kind of swapped here, depends on whether you live in a poor nation or a wealthy nation. If you’re in a poor nation, it is true that as your income goes up, your life satisfaction goes up. And that’s presumably because if you’re super poor, you’re not actually getting your even basic needs met. But if you live in a wealthy nation, like ours. I can go on that most of you guys where here come from, you’re just not really seeing any correlation. And so these are the basic data. The upshot is that it does seem like income has an impact, but it really doesn’t have that much impact and the impact it has is mostly driven by poor nations, for whom the income bump means you’re going to get access to things like clean water, and basic healthcare, and that sort of stuff. Really, for most of us, it doesn’t matter and it seems like once you get your basic needs, getting an extra money is not going to help you too much.

Another way we can look at this, is to look across history, where the kinds of needs that we have met today are much better than what we could see way back in the day. Like is the happiness level of people in the modern day different than back in the old day before? We don’t have great surveys from super far back in history, but here’s a comparison that’s kind of relevant. What life was like in the 1940s versus 2015? So, income has gone up a bunch since the post-war time in the 1940s, also cool stuff that you’d think would be basic needs has gone up. So, I’m told only about two thirds of houses in the 1940s had things like indoor showers and plumbing and hot water and things like that, let alone things like dishwashers and iPads and cell phones and all the stuff we have. So, presumably their basic needs are being met even less, so their happiness should be lower. What can we see? Well, if we look at average happiness as reported in 2005 most people are saying 7.2 out of 10. What about the 1940s? If anything, it’s slightly higher.

So, getting access to the stuff that, if all of a sudden your dorm rooms didn’t have hot water or you had to take walk outside to outhouse to go to the bathroom in the morning, you would be annoyed and you would think that would reduce your happiness, but actually doesn’t for people who are used to it back in the day. So, that’s the historical part, and it’s caused some folks like David Myers, who wrote this book “The American Paradox.” to say, we’re living in this paradox which he nicely articulates, he said “Compared with their grandparents, today’s young adults have grown up with much more affluence, slightly less happiness and in fact a much greater risk of depression and all kinds of social pathology.” He says this is a paradox because becoming much better over the last four decades hasn’t been accompanied by one iota of increased subjective well-being. All this extra stuff that we’re getting, it’s not actually making us much happier and that we should see kind of as a paradox. The final data I’ll give you on this connection between income and life satisfaction comes from a recent and very famous science paper by Danny Kahneman and Angus Deaton, both of whom are psychologists and economists who won the Nobel Prize in economics. So, they’re hot figures to listen to. They know what they’re talking about. And they were interested in this correlation of, not just the correlation but, is there some sort of threshold? Is there a point past which if you hit that income, you’re basically not going to get any more of a bump in happiness? We saw there is, at the lower level, some bump but where does it level off? And to do that, they surveyed Americans because they wanted it to be applicable to most of you folks.

And what they looked at was a couple of different measures of life satisfaction. They looked at what they’re calling positive affects. So, how much you smile in your daily life. Nice predictor of if you’re happy. Whether you report that you’re not blue. This is the opposite of reporting that you’re worried or sad or anxious throughout the day. And whether you report that you’re stress free. Like, I asked you were you stressed yesterday and you say “No, I wasn’t stressed”. So, what happens across income? And so, here are all these different measures. You’re seeing income over here but it’s kind of a logarithmic scales. We’re kind of jumping bigger incomes here. And you’ll see what they report for all these different measures of stress, not blue, affect and so on. And so, you can see two things. One is at the lowest income levels. Yes, as you get more and more money those things are getting better and better but then they kind of just level off. And they level off even as the incomes get substantially bigger. What is the threshold for this leveling off? It does appear that there’s one, it’s about $75,000. After that point, as an American you’re just not getting any more bump in any of these good things, which is kind of cool. So, this basically is what they find, it is the case that what they’re calling emotional well-being, that’s that EWB, rises with your income but stops after $75,000. Why $75,000?

Not really clear but they know, in the paper, that that’s kind of a plausible number at which you think money’s not an issue. That’s at the point where you basically got everything covered in the U.S. I note this particular paper, I think it’s especially relevant for Yale students right now and was really apt to see this last week in The New York Times. Because some of you might have seen this. It was on Overheard at Yale. Last week, at the New York Times, they did all these stats on average, how much people make and all that stuff. And one of the statistics in particular was, what students make when they get out Yale? Across different Ivy League schools. So, that is median student income at age 34. Yale is ranked among the Ivy’s as the sixth Ivy in terms of what you can make when you get out of here. Not so bad, but the relevant number is the median income, age 34 is over that threshold, $76,000. So, basically when you guys turn 34, you guys are set. You’re not going to have any more income happiness increase, is basically what the statistic is. So most Yale’s when they get out of here, after they turn 34 are just set. So, you think $75,000 sounds like a lot, probably most of you in this room will make that. So, you guys are good. So, that was the Kahneman and Deaton finding. They did one more interesting thing that I think, gives us a sense of where our bad intuitions are coming from. Because in addition to measuring all these things about, are you stressed, are you blue, and so on. They also measure this thing they called “Life Evaluation”.

What that is, is they say, “Imagine that you could evaluate your life on a ladder numbered from 0 to 10 and the bottom is the worst possible life and the top is the best.” So, you’re going up this ladder. Where do you put yourself on this ladder? What’s your perspective on your own life? Not, are you actually happier, actually blue, actually stressed, but your own vision of your own life. And then they looked at how that played out according to income. These are the measures you saw before. But here’s what happens with this ladder measure. Basically, that continues to still go up, although not as steep at the top levels. But the idea is that even though our emotional well-being isn’t going up after $75,000, we think our own evaluation of our own life is going up. We kind of have this mismatch between how we’re actually feeling and how we’re evaluating our real life. And so, this is the idea that high income doesn’t actually mean happiness but it kind of makes you think that you must have a life that’s happier when you’re like, “I make $200,000. ”

When you think of that, you’re like, “I must have a really good life.” Even though it’s not actually translating to. And so this question, “Does money really make us happier?” Answer is maybe a little bit, maybe if you’re in the US and you only earn 10k a year, more money would make you happy. But for most of us, it’s not going to make that much of a difference and it’s making way less of a difference than we actually think. So, that was money, you had that as a goal for the summer. Just get rid of that. It’s not going to help you be happier.