Standard Life Investments

Weekly Economic Briefing


Money can’t buy happiness (but it helps)


The recovery and subsequent expansion of the Eurozone and broader European Union economy has been reflected in significant improvements in consumer sentiment. After net consumer confidence fell from a high of -1.5 to a low of -34.7%, it finally broke into positive territory late last year, sitting at 0.1% in the latest February reading. However, while we can see that economic and financial confidence has returned; what about overall happiness levels and life satisfaction in Europe? The latest Eurobarometer survey found that 83% of EU and 82% of Eurozone citizens are ‘satisfied’ on the whole. Taking a look back through history, the EU had the same levels of life satisfaction in 2006 before the crisis hit but declined to 75-76% in the wake of the crisis. On the country level, changes in life satisfaction were more extreme in some countries than others; while German life satisfaction increased between 2005, 2010 and again through to 2017, peripheral reports of life satisfaction deteriorated pre- and post-crisis, with Greek levels of dissatisfaction persistently high since the crisis began (see Chart 6). Life satisfaction has also declined in other countries hit hard by the twin crises – namely Italy and Spain.

Scars not all yet healed Money isn't everything

While we would expect economic stability to affect life satisfaction and related happiness measures, the UN’s World Happiness Report hints at a number of known and unknown variables that contribute to overall happiness levels. Looking at the global rankings, it is hard to ignore the economic element at the European level. Scandinavian and Northern European countries top global happiness rankings consistently, with Norway in number one spot in 2016 followed by Denmark, Iceland, Switzerland and Finland in the top five. The lowest happiness level reported in the EU is Greece, which came in 87th place out of 155 countries – well below its European and other developed market counterparts. Greece also showed the third largest negative change in reported happiness between 2007 and 2016, topped only by the Central African Republic and Venezuela.  That said, most European countries registered lower or similar happiness levels in 2016 versus 2007 reports with the exception of Germany, Estonia and Hungary, which posted notable improvements. 

However, although the UN finds that GDP per capita explains a chunk of happiness reports – between 20-25% on average across European member states – it is not the whole story. Additional explanatory variables including healthy life expectancy, generosity, social support, freedom to make life choices and perceptions of corruption seem to explain about 40-50% of total happiness reported across major European countries. Comparing the different variables, there is some but not a huge amount of variation in the explanatory power of GDP per capita, social support or life expectancy across our sample of European countries. The divergences seem to come through in terms of the more obscure variables: generosity, freedom to make life choices and perceptions of corruption (see Chart 7). In particular, Greece and Italy report perceptions of corruption and lack of generosity weighing on happiness much more than in wealthier, happier European countries. For policymakers, this suggests that both economic and institutional reforms are needed to meaningfully improve happiness levels in these beleaguered economies.

Stephanie Kelly, Political Economist