The Value of Money

I’ve never come across something as common yet controversial as, “Money doesn’t buy happiness.” Could that really be the case? To understand and form our own opinions, we must break down “money” into its most basic form and principles.

Money was established as a token you can spend and receive for goods and services. Before there was an established economy, people would directly exchange these goods and services, saying, “I’ll give you 20 eggs from my farm if you help me carry hay bales today.” They would barter, and come upon an agreement.

The reason the farmer could offer this is that he had the resources to produce extra eggs. It is much easier and cheaper for him to save 20 eggs from his 30 chickens then it would be for a random person to acquire a chicken and wait for it to produce 20 eggs.

This is the same reasoning we use when buying things today. It is easier for me to earn $7 from my job, which would take me less than an hour, than to farm and harvest bread and vegetables, acquire a source of heat (i.e. an oven), acquire and milk a cow, learn how to make milk into cheese, and finally put it all together, all to make a Subway footlong.

The Subway corporation already has these massive industries, and can mass produce these items, making it significantly cheaper for the consumer.

You can think of it like this: Buy a watermelon seed for $0.10, plant it, and eat it. Or, buy $0.50 worth of seeds, plant five watermelons, sell 4 for $1, and eat one yourself. You have earned $3.50 for exerting a minimal amount of effort more than you would have just planting one. You’re already in the dirt, you might as well throw in a few more seeds, you’ll still only need to wash your hands once. If all five people who wanted a watermelon planted one themselves, there would be five total trips to the store, rather than one person doing it all themselves, in one total trip.

Why does all this matter? Well, it gives us a perception of the value of money. Money is worth different amounts to different people. $100 to a wealthy adult isn’t much, but $100 to a kid in a candy shop is unlimited money. That is why we donate; Bill Gates can afford to give money to those who need it, and it doesn’t affect his happiness (negatively). However, to the people who are receiving the money, it makes a world of difference, and you better believe they are happy about it.

The human mind operates on a logarithmic scale. $1 million is worth less to Bill Gate than an average American because it is such a small percent of his worth, but to the average American it could multiply their net worth many times over.

Say you’re in a Best Buy, about to buy a $10 aux cable, and you realize you forgot your coupon for $5 off in the car. That $5 is worth the 2 minute walk to your car, so you go out and get it. However, what if you’re buying a car, and you have a coupon that will save you $5 on a $10,000 purchase? It doesn’t even seem worth getting it out of your car, even though it is he same amount of money. That’s why there aren’t coupons for cars; When buying something big like that, people don’t care to save a few dollars.

Of course, if you are wealthy enough, you pay no attention to coupons regardless. These people are so wealthy that it isn’t worth their time to cut coupons. People’s time is worth different amounts. The average salary of someone with less than a high school diploma is $25,636 per year, while the average for those with a doctorate is $84,396 per year. Of course, this doesn’t mean one person is worth more than another, because if we were taken over by some alien overlord and forced to do physical activity, those who spent their days in the gym would be valued over the office workers.

Does money buy happiness? My logarithmic brain tells me it depends how much money you have. I don’t think someone with $75 million to spend is more happy than someone with $76 million, but someone with $0 to there name probably won’t be as happy as those with a million in their bank account.

According to a famous 2010 Princeton University study, once you earn around $75k per year, the dollar to happiness ratio slows down; Updated research (2018) has shown this satiation point to be $105k/year. The point is, once you get around this (very) livable salary, your time would be well spent trying to improve other facets of life, such as learning, love, family, and friendships.

But up until this point, does money buy happiness?

Well, in a way, yes. It depends on how you spend your money, though. Studies from PNAS show that people who spend their money paying people to do chores for them, essentially buying themselves free time, were more happy than those who bought themselves material things. This resonates with what armchair philosophers will tell you: “Acquire experiences, not things.”

Of course, not everyone can afford to take time off work, go on vacations, or just hire people to get themselves free time. That is where the magical satiation point from above kicks in. Of course this number will vary from situation to situation, as it depends on where you live, if you have a spouse, number of children, and other variables, but the idea is that if you have money to spend, and you spend it wisely, you can make yourself happy, or at least just as happy as the other people in your tax bracket.

Maybe “happiness” isn’t the right word at all. Maybe the problem is linguistics– I find “contentedness” to be a much better word, as it implies being able to be comfortable, and not be preoccupied with money problems (to the same extent as those in poverty).

To those who say, “money doesn’t buy happiness,” I have a few questions: Why do you think coupons exist? Would you be happy without food, water and shelter? Why are anti-depressants available to buy, them being drugs that make many people happier with their lives?

In summary, money can buy contentedness, however the extend heavily depends person to person, depending on career, location, family, and more.

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