“It is such a pity we are so poor” my son said. This was almost ten years ago but I remember it as if it was yesterday.
I explained that both me and his mother paid federal tax. This meant we were both among the top 15 to 20 percent of Swedish income earners. As a family we were surely in the top ten, possibly top five percentile. Statistically speaking my son should have exclaimed “It feels great to be so rich” but that was not how he felt.
He went to a private school in the middle of Stockholm, increasingly a rich peoples ghetto. Most of his friends spent their vacations in luxuary hotels in fabulous resorts. Some had two summer cottages. One for winter and one for summer. No wonder he felt poor. A ten year old boy does not check the income statistics. He just compared our habits with those of his friends.
A recent analysis by Sacks, Stevenson & Wolfers claims that the richer you are, the happier. Sure. We all knew that and the Wise Happiness study confirmed it.
But the surprising thing was how precious little of the overall life satisfaction we could explain by using income. Not even one percent of the overall variance in happiness! We had expected more. Money comes nowhere close to having a partner or a job where you can grow and have fun.
My income explains less than one percent of my happiness. My combined family income is twice as important, but the family income in comparison what people make in my neighborhood: that explains four times as much of my happiness!
My son could not feel how much money his mom and dad were making. He just felt we made less than his friends parents did. That was his definition of “poor”.
Ps. This extra analysis of Wise Happiness was produced by subtracting the mean income in each postal code area from the income of each respondent’s household. The difference explains four times as much of the overall happiness as the income of the individual respondent (in logistic regression analyses) and twice the percentage we can explain with the husehold income alone.
Researchers Sacks, Stevenson & Wolfers compare the income of each individual respondent with the mean income in the country. That is as if my ten year old son would compare himself with the average ten year old Swede. That is just not how things work. We compare ourselves to people in our immediate surroundings.