Wellbeing creation and what makes us happy

Wellbeing creation and what makes us happy

As the comedian, Spike Milligan once said “Money can’t buy friends, but it can get you a better class of enemy.” This is linked to the debate as to whether having more money makes people happier than they previously were.

At Capital, we operate in the world of money and finance although our advice, planning and guidance does overlap into the sphere of personal wellbeing because after all, what is the purpose of having more if it doesn’t make you happy?


The London School of Economics (Centre for Economic Performance) recently published a paper on the Origins of happiness which explores the key determinants of life satisfaction and how best to reduce misery and enhance wellbeing, with evidence from survey data on Britain, Australia, the US and Germany. How did they define wellbeing? It is life satisfaction and the question “Overall how satisfied are you with your life these days?”

The biggest factors were all non-economic (mental health, physical health and being partnered). The paper asks what would have the biggest effect on improving wellbeing, and the result may be surprising. By removing depression/anxiety it would have the same impact as abolishing poverty, unemployment and the worst physical illness combined.

Resolving these huge social issues costs money, but they are far from equal. If treating depression/anxiety has a cost factor of 1, then unemployment costs 3, physical health 10 and poverty 18.

What is the best predictor of adult wellbeing? It is their emotional health as a child – their emotional health at 16, academic qualifications, and behaviour at 16 in that order of priority. So, whilst qualifications per se are not the number one factor, it does matter which primary and secondary school the child attends (often impacted by the wealth of the parents).

The Easterlin paradox and hedonic adaption

Put simply this means that as countries get wealthier by GDP (gross domestic product), it doesn’t imply that the population gets any ‘happier’ and that hedonic adaption means that we simply very quickly get used to the new pay-rise and adapt to the new norm.

The results can be clearly seen from the chart below, where the dotted horizontal line represent wellbeing and the diagonal line shows average incomes. The UK data covers 20 years, whilst the US data is over 75 years, and the ongoing trends appear to be very consistent. Overall average incomes have risen, whilst happiness and wellbeing levels remain constant.


Keeping up with the Jones’s

It appears that people care more about how their incomes compared to others, than how it affected them. So, no matter how much their income improves, if it does not improve ‘more’ than their peers then satisfaction levels remain low.

Social relationships

Humans are social-group animals and we can measure this by the research on loneliness being the most negatively impactful state to be in, and that the ‘state’ confines individuals to solitary confinement for the worst offences. To be outcast from your tribe is about as bad as it gets. Having a partner really boosts wellbeing levels, up by 0.6 and married couples had the highest overall levels (ONS).

Physical health

Good physical health scored highly for wellbeing and life satisfaction in both the LSE and ONS research.

Mental health

Good mental health and having a partner make people happier than a doubling of their income. This is based on responses from 200,000 people (LSE research) and may surprise many readers. On a 1 to 10 scale, the doubling of income registered at only 0.2, compared this to the 0.6 for having a partner mentioned above.

The ‘U’ bend

There is clear evidence that ‘middle age’ (45-59) sees a happiness dip, possibly due to career anxiety and the responsibility for ageing parents and younger children simultaneously (the sandwich generation). The age group 65-79 is the happiest overall, probably due to more free time to engage in leisure activities of their choice.

Finding the perfect balance between money and wellbeing is extremely difficult to achieve, otherwise we would all be 100% content, but that shouldn’t mean we can’t try.

If you would like to discover the happiest place for you to live in Britain, take this short test from the BBC.

At Capital, we believe in the trinity of health, wealth and happiness.

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