Money can buy happiness, but it takes $2.5 million

by David Smith
The Sunday Times, March 4, 2001
March 2001

ECONOMISTS have for the first time discovered the price of happiness, and it is at least £1m. New research suggests that, contrary to folklore, money can bring happiness, but it takes a large amount.

A bit extra in the pay packet is not enough. Only a windfall of £1m or more can give a significant boost to wellbeing. Estimates from work being carried out by Jonathan Gardner and Andrew Oswald of Warwick University indicate it would take a lottery win or other cash boost of similar size to lift people out of misery.

Feeling the benefit: extra cash in the pay packet
is not enough. For a real sense of wellbeing
you need a giant windfall.
Photograph: Tony Stone

In research due to be published soon, the Warwick team is analysing the results of a giant experiment achieved by following in close detail the lives of 10,000 randomly chosen people in Britain every year throughout the 1990s.

The study, funded by the Economic and Social Research Council, is already attracting considerable interest among pyschologists and researchers because it is the first scientific experiment that attempts to measure the cost of happiness.

Rafael Di Tella, a Harvard economist who specialises in the field, said: "What Gardner and Oswald have done is truly important and resolves an important piece of the puzzle. People who receive money in windfalls are substantially happier than those who do not."

The psychological health and happiness of the men and women in the survey, their wellbeing, was measured each year. During the period, hundreds of them received significant windfalls, either in lottery wins or other prizes, or inheritances.

By setting these windfalls against changes in wellbeing, the researchers were able to pinpoint the relationship between the two. On this basis, it took £1m to lift people "from the bottom of the mental wellbeing frequency distribution to the top".

If somebody started off being miserable relative to the rest of the population, £1m would be enough to make them more cheerful than most others.

It also appears to fit well with real-life experience. Since the national lottery began in November 1994, it has created more than 1,100 millionaires. Brian Hicks, 52, from South Gosforth in Newcastle, won £1.6m in February 1998. He chose not to retire but to carry on with his building and shop-fitting business, using some of the prize to invest in it.

"It has made me much happier," he said. "Half a million is not enough to run your life on and change it totally. To change your life you've got to be looking at a million-plus. I couldn't have done everything I wanted with less. To win £10m would change everything and might be for the worse in the end. People can go off the rails."

Penny Haigh, 52, from Doncaster, won £1.3m in March 1996. She previously owned an engineering company with her husband John, but after the win gave the business to their three sons and took early retirement.

"Early retirement was enjoyable but we missed working. The money meant that we could do something we always wanted and invest in a pub," she says. "We never worry about money and can take a holiday whenever we want to."

Money, however, is not without its complications. Dawn Wilby, 31, of Barnsley in South Yorkshire, won more than £4m on the national lottery in 1999. A miner's daughter, she had lived in rented accommodation and worked as a clerk. After quitting her job, she bought a £150,000 detached home and a Volkswagen Golf convertible.

Ten months later she took a job with financial consultants for £12,000 a year, saying she had been "as miserable as sin" staying in bed late, watching television in the afternoon and hitting the town at night. "Without a job, my life had no structure. My brain was going to sleep," she said.

Robert Frank, of New York's Cornell University, who will this week give a seminar at the London Business School, agrees that a big cash boost will make you happy. But he also emphasises the importance of people's relative position. If everybody is better off, pressure grows to "keep up with the Joneses" and the result can be to diminish happiness. "The problem is that each family can control how much it spends, but not how much others spend," he said.

Bruce Sacerdote, from Dartmouth College in New Hampshire, agrees: "When an investment banker is miserable with a $2m bonus, it is because her friend at is making more. On the other hand, being flat broke is no fun, even if your neighbours are broke, too."

Money is not the only route to happiness. Other research by Oswald suggests that a lasting marriage is worth, in cash terms, £70,000 a year. Other surveys have suggested that good health is the key determinant of happiness, although often this is related to wealth.

People who have "downshifted" - given up high-paying jobs for less stressful lifestyles - usually report increased happiness. A survey of Britain's "young rich" by Taylor Nelson Sofres found that they regarded "mental wealth" as more important than money.

These things may be more lasting than windfalls. Edward Diener, a psychologist from the University of Illinois, said: "Adaptation to conditions is one of the best-documented findings in this area. I predict people who win a large lottery will be very happy for a time, but slowly settle back towards their original baseline. Very large positive effects on happiness are unlikely to last a lifetime."