Can money buy you happiness? If not, why not? Surely wealth brings control, choice and security – apparent prerequisites for the happy life?

Philosophers have debated such matters for centuries; in recent years, behavioural economists have joined the debate, and the picture emerging from their research is nuanced.

How much is enough?

About $75,000 (€58,000) per year, according to behavioural finance guru

Daniel Kahneman

, “buys life satisfaction but not happiness”.

Kahneman looked at surveys measuring two aspects of wellbeing; life evaluation and everyday emotional wellbeing. The more people earned, the more positively they felt about their life. When asked how they felt the day before, however, emotional wellbeing levelled off at about $75,000.

Most people assume they would be happier if they were richer, but Kahneman describes this as a focusing illusion, saying: “Nothing in life is quite as important as you think it is while you are thinking about it.”

In short, high incomes “don’t bring you happiness, but they do bring you a life that you think is better”.

Montier’s top tips

Investment strategists are not blind to such research. In 2004,

James Montier

, then a strategist at Dresdner Kleinwort, surprised clients by penning a seven-page letter on happiness.

Don’t equate happiness with money, he cautioned; people quickly adapt to income shifts.

Instead, look to enjoy your job, exercise regularly, reflect on the good things in life, work on close relationships, and have sex, preferably with someone you love. “Sex is consistently rated as amongst the highest generators of happiness,” he said. “So what are you waiting for?”

The cons of money

Different studies confirm there are many reasons why the happiness boost derived from increased wealth is less significant than assumed.

One paper, Money Giveth, Money Taketh Away, suggests wealth dents our ability to savour small pleasures. It describes an experiment where two groups of participants – one was exposed to a reminder of wealth, the other wasn't – were given a piece of chocolate. The former spent less time savouring the chocolate and exhibited less enjoyment of it, indicating wealth may "undercut people's ability to reap enjoyment from life's small pleasures".

In another experiment, the downside to the “time is money” adage was exposed. The researchers primed a subgroup of people, via survey questions, to think about their time in terms of money. Later, they reported less enjoyment and greater impatience after taking part in various leisure activities, indicating the financial mindset may “affect our ability to smell the proverbial roses”.

Crucially, money can make people more selfish and asocial, as documented by US marketing professor Kathleen Vohs. In one study, Vohs primed a group of participants to think about money, whether by displaying computer screensavers denoting dollar bills or by leaving Monopoly money in the room, or other such methods. Later, they were slow to help when asked for assistance with a difficult task. They were also slow to ask for help. They chose more solitary leisure activities; they kept a greater physical distance between themselves and others; when asked to donate some money they had been paid for their participation, they were more miserly than others.

The very concept of money, Vohs shows, changes people’s behaviour, and often not for the better.

Counting the benefits

Of course, money brings obvious and not-so-obvious benefits.

The simple act of counting money can make you happier and help relieve pain, according to another Kathleen Vohs study. In an experiment, one group was asked to count large-denomination bills, before then immersing their hands in very hot water. The money-counters reported less pain than the noncounting group.

Vohs also devised a rigged game of Catch, whereby half the participants were denied the ball. Again, less feelings of rejection and social distress were reported by the money-counting group.

Other related experiments showed people who have been rejected want money more, as do people in physical pain. Greater physical and psychological pain, meanwhile, was reported by people reminded of their recent spending.

In short, money – even the idea of money – “confers a broad, strong feeling of being able to cope with problems and satisfy one’s needs”.

Buying happiness

You can’t spend your days counting money, of course, but can you spend your way to happiness?

Money is an opportunity for happiness, according to psychology professor and author of Stumbling on Happiness Daniel Gilbert, but it is one people "routinely squander because the things they think will make them happy often don't".

In one Gilbert paper, the wonderfully titled If money doesn't make you happy, then you probably aren't spending it right, he recommends people buy experiences instead of material goods.

We get used to the latter, whether it be a new car or the latest tech gadget. In contrast, experiences – travel, concerts, sporting events and the likes – linger in our minds, one survey finding 83 per cent of people mentally revisit their experiential purchases more than their material ones.

Other spending tips? Spend on others rather than yourself. Most people assume spending on themselves will make them happier, but surveys confirm the added benefits of “pro-social” spending. “Almost anything we do to improve our connections with others tends to improve our happiness as well,” says Gilbert, “and that includes spending money.”

Gilbert also suggests people buy many small pleasures rather than “pouring money” into the occasional large purchase. Because we quickly adapt to new realities, it may make sense to buy “frequent doses of lovely things rather than infrequent doses of lovelier things”.

Gilbert also a warns against the “consume now, pay later” model, whereby payments are extended over a period of years. Instant gratification is bad for your finances but also for your happiness, he says; it removes the pleasure of anticipation. Instead, whatever the purchase, try to delay consumption.

The person who buys chocolates and immediately eats them gets some pleasure, but less than the person who saves them until later. Anticipation, says Gilbert, “is a source of free happiness.”

Investor happiness

The quest for happiness may also underpin much investment activity, according to a recent paper co-authored by Barclays’ behavioural finance guru Dr

Greg Davies

.

In surveys of Barclays clients carried out over the 2008-2010 period, investors were asked what level of returns they expected, as well as what they would be happy with.

Notably, poorer and financially illiterate investors were more demanding than older, richer and more knowledgeable long-term investors. This “higher happiness threshold” might explain why such investors tend to invest in lottery stocks, Davies says.

Additionally, portfolio returns were appreciated more when they emerged from personal trading success, he found, as opposed to returns derived from those that followed a buy-and-hold strategy, used index funds or employed an adviser. Outperforming other people also added to investor happiness.

Overtrading and underdiversification “might result from a quest for happiness by immediate trading success”, as well as explaining their reluctance to delegate their investments.

This conclusion makes sense, for many reasons. Money won has always been sweeter than money earned. Additionally, few pleasures are as great as being right. Outperforming others? The icing on the cake. The irony, of course, is that lottery-type trading is a losing game; searching for happiness on the market battleground is likely to yield anything but.