Money can't buy happiness? Think again.

The markets' downturn has given rise to advice articles seeking to console stockholders for this sudden and upsetting erosion of their capital. Assuming a soothing tone reminiscent of the cleric, these advisors are now telling investors there is a bright side to loss. Individuals with less money are free to swim with dolphins in Sanibel - or study Sanskrit - something they had no time for in those high-stress, big money years. They can spend time with their families - a change, we are told, that is worth all the lucre in the world. Best of all, the new financial losers no longer have to feel all that guilt over doing better than some of their fellow citizens. In short, people are generally happier when they don't have quite so much money.

Balderdash, says a new study by Jonathan Gardner and Andrew Oswald of the UK's Warwick University.* Money does buy happiness. And, alas, the more money, the more happiness. Or, to put the matter in the terms of the old hedonic calculus of the utilitarian philosophers, cash buys "utils", units of pleasure.

To arrive at this conclusion, so distressing for the newly impoverished, the study sifted through a decade of data from the British Household Panel Survey, a representative sample of some 9,000 adults living in the UK in the 1990s. The survey includes a number of straightforward questions that seek to measure individual contentment - whether respondents feel "able to enjoy normal day-to-day activities"; whether they have been losing self confidence; whether they are losing sleep. The authors then looked at outcomes for individuals who had benefited from a windfall experience in the past year - "windfall" being defined as either a lottery win or the receipt of an inheritance. Data on investment were not parsed in this "windfall" category. But didn't 1999's tech gains feel windfall-like?

The authors' findings? "Windfalls are associated with a statistically well-determined improvement in well-being." Both mental stress and unhappiness decline in the year after a windfall. This is true even when the windfall yields only a fistful of cash from the local soccer pool - although as the authors confirm, "largish wins are nicer than tiny ones".

But how much money does it take to get that big boost? A windfall of approximately 50,000 pounds (or $75,000) is associated with a rise in well-being of up to 0.3 standard deviations. (This figure sounds small but amounts to quite a lot - a similar difference on a standardised test, for example, can mean the difference between admission to medical school and dental school). To go all the way from misery to euphoria, one would have to come upon something like a million pounds ($1.5 million) - a formula that just about accords with anecdotal reports of formerly depressive dot-com founders.

There are several caveats here. One is that the UK windfall data has only been available for a couple of years. So there is no way of measuring whether money-based happiness abides over many years. But then, what happiness does?

What's more, other work by Mr Oswald shows, money is not the only source of contentment. In a National Bureau of Economic Research paper coauthored with David G Blanchflower of Dartmouth, Mr Oswald calculated that a happy marriage is worth the equivalent of $100,000.

And, in an e-mail to me, Mr Oswald did throw a bone to the consolationists. Money, he says, tends to be about envy. So if "everyone's wealth goes down at the same time, it doesn't hurt as much for to get poorer. Human beings seem to feel they have to look over their shoulders before they decide how happy they feel."

This suggests that Britain may have an easier time than the US getting through a downturn. In the UK, after all, older citizens have long experience deriving comfort from a sense of community during periods of national hardship (think of the 1950s, as depicted in the film "Plenty"). Americans though have to go all the way back to the Great Depression to find a time when they suffered together. For most of America's under-60 investors, that is probably too big a historical leap. They would probably rather just shut their eyes and gamble that Mr Market will come back.

* Does Money Buy Happiness? www.warwick.ac.uk/fac/soc/Economics/oswald/

© Copyright 2001 Financial Times

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