Money and Happiness: Exploring the Connection Between Financial Well-being and Emotional Well-being (2024)

FAQs

What is the relationship between money and emotions? ›

Our emotional ties to money, often shaped by early experiences and traumas, play a significant role in our financial habits and decision-making, and understanding and addressing these emotional connections can be a crucial step toward achieving financial peace and success.

The Killingsworth Study

They were also surveyed about their income and satisfaction with their lives. Using this data, which constituted over 1.7 million experience samples, Professor Killingsworth found that larger incomes “were robustly associated” with both greater happiness and greater life satisfaction.

When talking about happiness, Britannica defines it as a state of emotional wellbeing. Happiness can exist without well-being, but well-being can't exist without happiness. It leads us to physical and emotional aspects which every person is trying to blend into a single and harmonious mixture.

Money problems can affect your mental health

Certain situations might trigger feelings of anxiety and panic, like opening envelopes or attending a benefits assessment. Worrying about money can lead to sleep problems. You might not be able to afford the things you need to stay well.

Several emotions can come up when creating a budget, paying bills, earning an income, paying off debt, and whatever money decision comes up at any given moment. When making money decisions, you might feel anything from stress, shame, guilt, and fear to happiness, excitement, and relief.

Money contributes to happiness when it helps us make basic needs but the research tells us that above a certain level more money doesn't actually yield more happiness. Not only did earning more money make participants happier, but it also protected them from things which might make them unhappier.

“Money can't buy happiness, but it can make you awfully comfortable while you're being miserable.”

Money can't buy happiness. As much as it can make our lives easier, happiness comes from within. If you are unhappy with yourself, money won't change anything. So, it's important to find happiness in simple things.

Happiness is a positive emotion/feeling that comes from experiencing joy, contentment, or satisfaction. Well-being, on the other hand, is a broader concept that encompasses not only happiness but also the overall quality of our lives. It considers factors like physical health, social connections and a sense of purpose.

What is the link between emotions and wellbeing? ›

People who are emotionally well, experts say, have fewer negative emotions and are able to bounce back from difficulties faster. This quality is called resilience. Another sign of emotional wellness is being able to hold onto positive emotions longer and appreciate the good times.

Money is closely associated with well-being, a finding that rings true when comparing the happiness of two individuals in the same country, one 10% richer than another, or the average happiness of two countries, one with 10% higher income per capita.

Specifically, for the least happy group, happiness rises with income until $100,000, then shows no further increase as income grows. For those in the middle range of emotional well-being, happiness increases linearly with income, and for the happiest group the association actually accelerates above $100,000.

Financial issues can also lead to physical health symptoms, such as migraines, a weakened immune system, high blood pressure, digestive issues, muscle tension, heart arrhythmia, and sleep problems. This all can lead to you needing to spend money to treat these issues, which can lead to more financial stress.

“Financial wellness is defined as “effectively managing your economic life” (Questis). “Well-being is defined as having financial security and financial freedom of choice, in the present and in the future” (Consumer Financial Protection Bureau).

Emotions play an important role in our personal finances. Research has shown that a substantial percentage of unplanned spending arises from impulsive emotional responses. This directly affects both our ability to save and our long-term financial stability. Stress from impulse purchases can lead to adversity.

The most important emotions in relation to money are fear, guilt, shame and envy. It's worth spending some effort to become aware of the emotions that are especially tied to money for you because, without awareness, they will tend to override rational thinking and drive your actions.

There is an old saying on Wall Street that the market is driven by just two emotions: fear and greed. Although this is an oversimplification, it can often ring true.

Money and Social Influence

Wealth can create power dynamics that skew relationships and interactions. People often attribute higher social status, competence, and even intelligence to wealthier individuals, which can lead to preferential treatment, a phenomenon known as the halo effect.