The money-and-happiness correlation
By Jay MacDonald • Bankrate.com

Wise men from Aristotle to The Beatles have observed that money can't buy happiness, but what inquiring minds really want to know is: Why not?

After all, we're constantly bombarded with evidence to the contrary, some of which must surely be true. The rich and famous seem to be fabulously happy as they scamper the globe in their private jets, acquiring real estate and adopting orphans, while we mere mortals simmer in rush-hour traffic just to keep food on the table.

Heck, money and happiness even seem to go together better than love and marriage, which, statistically at least, continues to have the same success rate as a coin toss.

But appearances can be deceiving.

According to a June 2006 study spearheaded by Princeton economist Alan Krueger and Nobel Prize-winning psychologist Daniel Kahneman, once you reach a certain income level, more money does not contribute significantly to well-being and may actually result in more stress and less bliss.

"The belief that high income is associated with good mood is widespread but mostly illusory," according to the study. "People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense and do not spend more time in particularly enjoyable activities."

The study found a weaker-than-expected correlation between income and moment-to-moment happiness in two surveys: a 2004 survey of 909 employed women in Texas and a 2005 survey of 810 women in Ohio. The researchers also looked at a Bureau of Labor Statistics survey on how folks at various points of the income spectrum spend their time. They discovered that women who make over $100,000 a year spend 19.6 percent of their time on passive leisure (i.e., fun), compared to women who make less than $20,000, who spend 33.5 percent of their time kicking back or socializing. The findings suggest a "focusing illusion" that leads people to work for more money even when happier pursuits would ultimately do them more good.

"Despite the weak relationship between income and global life satisfaction or experienced happiness, many people are highly motivated to increase their income," according to the study. "In some cases, this focusing illusion may lead to a misallocation of time, from accepting lengthy commutes (which are among the worst moments of the day) to sacrificing time spent socializing (which are among the best moments of the day)."

While we like to think we're just a lotto combination away from solving all of life's problems, experts agree that money itself has very little to do with living happily ever after.

The Jones factor
Remember the Joneses down the street? Daniel Gilbert says they actually might have more influence on your happiness than all the zeros in your savings account.

The Harvard psychology professor recently condensed 15 years of thinking about the elusive concept of happiness into his new book, "Stumbling on Happiness." He says that beyond a certain point, money has very little to do with happiness.

"The basic idea that 'If I could make more money I would be happier' is true if you're living in a cardboard box under a bridge; it's probably not true if you're making $190,000 a year," he says. "Money does make a difference when it moves you from abject poverty into the middle class, but it stops making a large difference at about that point. In terms of happiness, the difference between making $5,000 a year and $50,000 a year is dramatic, but the difference between making $100,000 and $100 million is negligible, almost nonexistent."

Nevertheless, an asset shortfall can dampen your bliss when it comes to keeping up with the Joneses.