Money: The Real Truth About Money

Why we remain keen for green even though it often gives us more social anxiety than satisfaction

By Gregg Easterbrook Sunday, Jan. 09, 2005

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    The surprise is that after a person's annual income exceeds $10,000 or so, Veenhoven found, money and happiness decouple and cease to have much to do with each other. The study, which has been replicated in the U.S., shows that Grandma had a point. Over the past two decades, in fact, an increasing body of social-science and psychological research has shown that there is no significant relationship between how much money a person earns and whether he or she feels good about life. TIME's poll found that happiness tended to increase as income rose to $50,000 a year. (The median annual U.S. household income is around $43,000.) After that, more income did not have a dramatic effect. Edward Diener, a psychologist at the University of Illinois, interviewed members of the Forbes 400, the richest Americans. He found the Forbes 400 were only a tiny bit happier than the public as a whole. Because those with wealth often continue to feel jealousy about the possessions or prestige of other wealthy people, even large sums of money may fail to confer well-being.

    That seems true because of a phenomenon that sociologists call reference anxiety--or, more popularly, keeping up with the Joneses. According to that thinking, most people judge their possessions in comparison with others'. People tend not to ask themselves, Does my house meet my needs? Instead they ask, Is my house nicer than my neighbor's? If you own a two-bedroom house and everyone around you owns a two-bedroom house, your reference anxiety will be low, and your two- bedroom house may seem fine. But if your two-bedroom house is surrounded by three- and four-bedroom houses, with someone around the corner doing a tear-down to build a McMansion, your reference anxiety may rise. Suddenly that two-bedroom house--one that your grandparents might have considered quite nice, even luxurious--doesn't seem enough. And so the money you spent on it stops providing you with a sense of well-being.

    Our soaring reference anxiety is a product of the widening gap in income distribution. In other words, the rich are getting richer faster, and the rest of us are none too happy about it. During much of U.S. history, the majority lived in small towns or urban areas where conditions for most people were approximately the same--hence low reference anxiety. Also, most people knew relatively little about those who were living higher on the hog.

    But in the past few decades, new economic forces have changed all that. Rapid growth in income for the top 5% of households has brought about a substantial cohort of people who live notably better than the middle class does, amplifying our reference anxiety. That wealthier minority is occupying ever larger homes and spending more on each change of clothes than others spend on a month's rent. It all feeds middle-class anxiety, even when the middle is doing O.K. In nations with high levels of income equality like the Scandinavian countries, well-being tends to be higher than in nations with unequal wealth distribution such as the U.S. Meanwhile, television and the Web make it easier to know how the very well off live. (Never mind whether they're happy.) Want a peek inside Donald Trump's gold-plated world? Just click on the TV, and he'll show you. Wonder what Bill Gates' 66,000-sq.ft. megamansion is like? Just download the floor plan from the Internet!

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