The negative and positive impact of wealthy life are diverse. This is because money allows us to meet our basic needs to buy food and shelter and pay for healthcare. Meeting these needs is essential, and if we don’t have enough money to do so, our personal wellbeing and the wellbeing of the community as a whole suffers greatly.
The wealth effect is a behavioral economic theory suggesting that people spend more as the value of their assets rise. The idea is that consumers feel more financially secure and confident about their wealth when their homes or investment portfolios increase in value. They are made to feel richer, even if their income and fixed costs are the same as before.
The wealth effect reflects the psychological effect that rising asset values, such as those that occur during a bull market, have on consumer spending behavior. The concept hones in on how the feelings of security, referred to as consumer confidence, are strengthened by sizable increases in the value of investment portfolios. Extra confidence contributes to higher levels of spending and lower levels of saving.
This theory can also be applied to businesses. Companies tend to increase their hiring levels and capital expenditures (CapEx) in response to rising asset values, in a similar fashion to that observed on the consumer side.
The Negative and Positive Impact of Wealthy Life
There is considerable debate among market pundits about whether or not the wealth effect (i.e. the negative and positive impact of wealthy life) truly exists, especially within the context of the stock market. Some believe the effect has more to do with correlation and not causation, proposing that increased spending leads to asset appreciation, not the other way around.
At first glance, the notion that the wealth effect spurs personal consumption makes sense. It is reasonable to assume that anyone sitting on huge gains from a house or stock portfolio would be more inclined to splash out on an expensive holiday, new car, or other discretionary items.
Nevertheless, critics claim that increasing asset wealth should have a much smaller impact on consumer spending than other factors, such as tax, household expenses, and employment trends. Why? Because a gain in the value of an investor’s portfolio does not actually equate to higher disposable income. Initially, stock market gains must be considered unrealized. An unrealized gain is a profit that exists on paper, but that has yet to be sold in return for cash. The same applies to rocketing property prices.
Positive Effect
Here are the positive effect of money in our lives:
Money Provides Security and Control
Having enough money also provides a sense of security, one that is often missing when people worry about unforeseen medical expenses or losing their job. A 2017 study found that almost 50% of Americans worry about their financial situation, and it impacts their mental health, relationships, diet, even their work performance. There is no denying that having enough money to cover expenses and put some aside is important for our wellbeing.
Moreover, money can increase our short-term happiness by giving us more control over how we spend our time. For example, it can give us the option to live closer to work, work fewer hours, and spend more time on leisure activities with family and friends. Money can be used to make our lives easier.
Read Also: Perception of Positive and Negative Aspects of Technology
Negative Effect
Here are some of the negative effects of money in our lives:
More Income May Mean More Stress and Less Fun
Other studies have associated higher incomes with higher levels of stress, increased likelihood of divorce, and less enjoyment of small activities.
Ed Diener, a researcher who has spent over 30 years studying wellbeing, postulates that a higher income may mean more work, less leisure time, and fewer strong social connections. In other words, the benefits of having more money might be offset by the sacrifices people are making in other aspects of wellbeing. So while money can give us more control over our time, the fact is that most of us don’t use money to buy more free time or fun activities with friends and family.
Materialism Makes People Unhappy
We humans don’t always know what makes us happy! Because our society values it so, we believe that money will bring us happiness and so we don’t pay attention to what is actually going on. Consider these facts:
The happiness of acquiring goods is always transitory—it wears off. For example, we might be really excited to buy a bigger car, but over time, we take the car for granted. Moreover, we are still committed to monthly car payments, which can restrict our options for fun activities–vacations and dinners out, for example.
We adjust our expectations upward. As our income goes up, we feel we need more expensive things, and those higher aspirations use up almost all of our gained income. In other words, we use almost all of our raises to buy a more expensive version of things we already have. Our wants can be insatiable—the more we get, the more we want. This can lead to large debt and all the stress it brings.
Greater materialism is associated with a host of negative effects: lower self-esteem, greater narcissism, less empathy, and more conflicted relationships.
Large Wealthy Life Inhibits Wellbeing
According to the American Academy of Family Physicians (AAFP), research shows a connection between higher income and poor health outcomes and shorter life expectancy. There are many reasons for this, beyond the fact that people living in poverty have a harder time affording nourishing food and adequate shelter. For example, low-income neighborhoods often have poorer hospitals, and they are less likely to have public resources that have a positive impact on health, such as safe streets and clean water.
Poverty, like too much money which means too much work, sometimes also creates a domino effect of more challenges on one’s health.
