Which would you rather be: a multimillionaire whose friends and neighbors are all billionaires, or a worker making $10 an hour in a neighborhood where most people are scraping by on minimum wage?
Speaking strictly in dollar terms, you’d have to say the first person is better off. But there’s a good chance the second one is a lot happier with their lot in life. Although they’re not making much money, they’re better off than everyone else they know, and so they feel rich. By contrast, the first person, who is rich by most people’s standards, is likely to feel poor because everyone they know is richer.
Over the last few decades, economists have learned a fair bit about how money affects your happiness. One of their most interesting discoveries is that it’s not just how rich you are that matters; it’s how rich you feel. Feeling poor can make you less satisfied with your job and your life, lead you to make poor choices with money, and even harm your health – regardless of how much money you actually have.
What Makes People Feel Poor
How rich or poor you feel doesn’t necessarily have anything to do with your actual income. For instance, in 2015, Jesse Klein, a student at the University of Michigan, published an opinion piece in The Michigan Daily arguing that her family was middle-class, not wealthy, despite their $250,000 yearly income. At the other end of the spectrum, blogger Donna Freedman wrote in 2007 that she was not just surviving but “thriving” on an income of just $12,000 per year.