Personal Income and Subjective Well-being: A Review
Conventional wisdom holds that money has little relevance to happiness. This review will demonstrate quite the opposite is true and will argue that case using the Homeostatic Theory of Subjective Well-Being (SWB). Homeostatic theory proposes that SWB is held within a narrow range determined by personality. Experience with the environment also impacts on this system but its influence is attenuated by two sets of buffers. The internal buffers comprise beliefs in perceived control, self-esteem, and optimism. The external buffers comprise resources, such as personal assistance, that ameliorate the impact of potentially negative events. This model predicts significantly different levels of SWB for people who are rich, people on average Western incomes, and people who are poor. Data are provided that support this prediction. It is concluded that money buys happiness to the extent that external resources permit optimal functioning of the SWB homeostatic system.