It's one of the oldest cliched wisdom we know. French philosopher Jean-Jacques Rousseau, at least two decades prior to the United States, reportedly said, “Money can buy material things, but real happiness must be truly earned.” But a paper published by the National Academy of Sciences begs to differ.
In a small study conducted with 200 members, a research team from the University of British Columbia (UBC) proved that people find more happiness in life when they have more money.
Psychologists Ryan J. Dwyer and Elizabeth W. Dunn created the study, aiming to investigate the relationship between money and happiness. Two anonymous donors gave $2 million to the organization TED – yes, one who hosts 20 minute lectures. That money was then distributed to 200 individuals from different countries, different ages, and different income levels.
There were 300 total participants, with 100 chosen randomly serving as the control group, who did not receive the cash transfer.
Adults from Brazil, Indonesia, Kenya, Australia, Canada, the United States, and the United Kingdom were asked through Twitter to apply for a “Mystery Experiment.” Interested parties completed an initial survey, establishing demographics and baseline Subject Well-Being (SWB) measures.
Participants who were randomly chosen to receive the $10,000 were instructed to spend it in three months. During those three months, participants in both the control and experimental groups completed monthly surveys that included the preregistered measures of SWB.
Participants completed another survey six months after TED transferred the money.
Results of Cash vs. Control
Researchers calculated three-month averages for participants' life satisfaction and positive and negative affect. They tested whether changes in each outcome from the baseline to the three-month mean differed in each group.
Results showed that the cash recipients were significantly more satisfied with life month-over-month for the three-month duration compared to the control participants. They experienced more significant increases in positive affect and larger decreases in negative affect.
These results show that the cash produced “significant benefits” for the recipient's emotional experiences and life evaluations.
Cash recipients also showed more significant increases in SWB over the three months compared to the control group. Additionally, cash recipients reported at the six-month mark that the cash had enduring benefits for their well-being, despite already having been spent.
Researchers also studied whether people in lower-income countries benefited more from cash transfers than those in higher-income countries. Results indicated that cash recipients in lower-income countries exhibited significantly more significant SWB improvements than those in higher-income countries.
Improvement in SWB for cash recipients versus control participants was significant within both the lower-income countries and higher-income countries.
Researchers then replaced the country income with the individual household income of the participants. Amounts were converted to the US dollar and adjusted for purchasing power.
Cash recipients with lower incomes showed more significant improvements in well-being. Income within the control group was unrelated to improvements in SWB. Furthermore, participants with annual incomes of $10k would gain almost half of a standard deviation of additional happiness after receiving the cash transfer, and those making $100k would gain nearly a quarter.
Researchers also found that significant benefits were still detectable for those making up to $123k.
The Bigger Picture
While this study only looks at the effect of wealth distribution on 200 individuals, the overarching goal is to provide evidence that global wealth distribution would benefit everyone. The study points out that the world's richest 10% owns 75% of the world's wealth, while the poorest half only owns 2%.
Scholars across different disciplines have stated that income inequality directly affects the happiness of the world's population. On a smaller scale, the UBC researchers sought to answer the question: “how much happiness could be gained if the wealthy few redistributed money to a broader swatch of the world's population?”
Other countries have started pilot projects that examine the effects of cash transfers. Only two such projects have been completed so far.
The government gave 560 euros a month to 2,000 unemployed residents in Finland. Results indicated that this program increased their overall happiness. In Canada, 50 homeless people were given a one-time cash transfer of 7,500 CAD each.
The results of this experiment indicated that there was not a substantial increase in their happiness. A project is underway in Stockton, CA, where 125 low-income households receive $500 per month for two years.
Preliminary results from the first year indicate improvements in the resident's overall mood.
According to researchers, this study provides “causal evidence” that cash transfers “significantly increase” happiness across a diverse sample group spanning the global socioeconomic spectrum. The two high-net-worth individuals could generate “substantial happiness gains” for others.
The study's results indicate that those with the least benefited the most. Lower-income individuals gained up to three times more happiness than those in higher-income countries, and those who only make $10k a year gained twice the amount of happiness as those who make $100k.
The researchers concluded that, given that 99% of individuals earn less than $100k a year, cash transfers could benefit most of the world's population.
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Tyler Weaver is a real estate investor and blogger at Relentless Finance (https://www.relentlessfinances.com/). He has flipped over 50 homes and manages a real estate portfolio in the midwest. He strives to help others build wealth and add value to other’s lives through a constant pursuit of growth.