Money Doesn't Buy Happiness or Does It? A Reconsideration Based on the Combined Effects of Wealth, Income and Consumption

Melbourne Institute Working Paper No. 15/04

Date: July 2004


Bruce Headey
Ruud Muffels
Mark Wooden


The accepted view among psychologists and economists alike is that economic well-being has a statistically significant but only weak effect on happiness/subjective well-being (SWB). This view is based almost entirely on weak relationships between household income and SWB. But income is clearly an imperfect measure of economic well-being. Also needed are measures of wealth (net worth) and consumption. Wealth provides economic security as well as income, and consumption expenditure is the most valid measure of current living standards.

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