Too much money reduces life satisfaction

Happy mother and child (Dreamstime)23 August 2012

Money can't buy happiness, but it can buy wellbeing and a sense of security – up to a point. But after that, more money means more worries and a reduced quality of life.

Research from the ESRC Centre for Competitive Advantage in the Global Economy (CAGE) shows that life satisfaction actually is reduced when a country's GDP (the Gross Domestic Product, measuring a country's economic activity) increases beyond a certain level. The optimal economic level for life satisfaction lies between $26,000 and $30,000 of GDP – what the CAGE researchers call the 'bliss point'.

These figures are not personal income but GDP per person, ie the national GDP divided by the population. The figures are in 2005 US dollars value, adjusted for the different currencies' purchasing power.

"We find a positive relation between aggregate income and life satisfaction across poorer countries: this relation seems to turn negative in richer countries," conclude researchers Eugenio Proto and Aldo Rustichini.

They found that increases in GDP and life satisfaction were not directly linked, or 'monotonic'. "Our analysis shows first evidence of a non-monotonic relation between GDP and Life Satisfaction, with life satisfaction slightly decreasing after the bliss point," they state in the CAGE working paper A Reassessment of the Relationship Between GDP and Life Satisfaction.

The question of whether higher income in a country is associated with higher life satisfaction is crucial for how we assess the state of the nation and shape public policies. In November 2010 Prime Minister David Cameron announced that the Coalition Government would start measuring progress 'not just by how our economy is growing, but by how our lives are improving' - tasking the Office of National Statistics to develop indicators for wellbeing.

The CAGE research used data from the World Value Survey, covering five surveys between 1981 and 2008. In each survey the respondents were asked about how they ranked their satisfaction with life on a scale from one to ten. GDP data were taken from the World Bank World Development Indicators and Eurostat datasets.

The analysis showed a positive relation between aggregate income and life satisfaction in poorer countries, with life satisfaction increasing strongly with GDP. However, the increase in satisfaction slowed down after reaching the $10,000 level, and showed "a tendency to decline with GDP for the richest countries", according to the report.

The researchers also carried out a wider regional analysis across the European Union (including the original 14 member states prior to the first enlargement), to eliminate potentially confounding factors at country level which could skew the results. They found the same trend, with only a slightly higher 'bliss point'.

"Data show a positive relation between aggregate income and life satisfaction across poorer regions, and then this relation turns negative for richer regions with a bliss point between $30,000 and $33,000," the researchers conclude.