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Sunday, May 1, 2022

Higher the income - more satisfaction with life .... Engel's law of family expenditure

Happiness is a state of mind -  primarily  a mental or emotional state of well-being characterized by positive or pleasant emotions ranging from contentment to intense joy; though some Philosophers often define happiness in terms of living a good life, or flourishing, rather than simply as an emotion.  There are simple persons in life, who live life as it is ~ taking things as they come… reads simple, but too difficult to follow !!  For many life is full of expectations, it is unending long ‘wishlist’…there are so many things that we desire to have ~ and many a times wish that we have, what others do not have…

Ernst Engel,  was a German statistician and economist, famous for the Engel curve and the Engel's law.   In 1850, he was directed by the government to assist in the organization of the German Industrial Exhibition of Leipzig (the first of its kind). His efforts were so successful that, in 1854, he was induced to enter the government service, as chief of the newly instituted statistical department.

Engel's law is an observation in Economics stating that as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises. In other words, the income elasticity of demand of food is between 0 and 1. Engel's Law doesn't imply that food spending remains unchanged as income increases: It only suggests that consumers increase their expenditures for food products (in % terms) less than their increases in income. One application of this statistic is treating it as a reflection of the living standard of a country. A  low Engel coefficient indicates a higher standard of living. Communist thinkers cite Engel's coefficient as a quantitative measure of the misery of the working class.  Engel’s  curve describes how household expenditure on a particular good or service varies with household income.  The shape of Engel curves depend on many demographic variables and other consumer characteristics. In Micro Economics, Engel curve shows how the quantity demanded of a good or service changes as the consumer's income level changes.

The oft repeated myth in tinseldom is ‘rich men are not happy mentally and do not get to enjoy good sleep’ while poor are in happier state of mind and sleep well.  There is also the oft repeated wrong notion that poor are healthier.  In dispelling such wrongful fancied notions, University of Michigan study reveals that ‘money  really does buy happiness’  Economists discover the higher a person's income the more satisfied they are with life !!!

Economists Betsey Stevenson and Justin Wolfers say in their paper the May 2013 American Economic Review, Papers and Proceedings that there is no evidence of a 'satiation' point in the link between money and happiness.  Their study found the more money a person has the happier they are ~ Whoever said money can't buy happiness was very wrong, new research has found.  The  study of 1,014 people contradicts previous research that said the correlation between money and happiness diminishes when the basic needs of a person are met.

People were asked to rate their levels of happiness and their income was recorded. They wrote: 'While the idea that there is some critical level of income beyond which income no longer impacts well-being is intuitively appealing, it is at odds with the data.' Everyone with an income of £306,250 a year or more classed themselves as 'very happy'.  The University of Michigan study found that all those earning £61,250 a year or more also described themselves as either very or fairly happy.  However, only 35 per cent of people taking home £6,125 - the equivalent of $10,000 in the exchange rate used in the study - claimed they were happy.

A total of 21 per cent in that income bracket said they were 'not too happy'. The economists wrote: 'The income-well-being link that one finds when examining only the poor, is similar to that found when examining only the rich', according to AFP.  They added: 'We find no evidence of a significant break in either the happiness-income relationship, nor in the life satisfaction-income relationship, even at annual incomes up to half a million dollars.' People with the lowest incomes were more likely to describe themselves as 'not too happy'

The latest study comes after a separate study found people who splash out on ‘experiences’ such as days out and concert tickets are happier than those who buy possessions. Psychologists asked 9,600 people about their shopping habits, as well as questions to ascertain personality traits, values and life satisfaction. 'Experiential shoppers', who bought treats such as concern tickets or weekends away, rather than clothes or gadgets, reported greater life satisfaction, according to the study led by San Francisco State University Assistant Professor of Psychology Ryan Howell.

Are you happy ? ~ you need not be a rich man though, you can be and still be !


With regards – S. Sampathkumar

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