The relationship between money and well-being is unusual. The common wisdom is that the more we have the happier we become. However, consider this analogy. Over the Christmas period, it is tradition to stuff our faces with turkey and chocolates until we feel satisfied and happy (and probably sick). Come January though, I for one will be glad to see the back of it and will avoid probably avoid eating the stuff for several months...alright, maybe not the chocolates, but you get my point. As humans, we tend to consume something to the point where our needs are met and then we take a break.

Not so, it seems, with money. To quote Adam Smith, the founder of modern economics, "the desire for food is limited in every man by the narrow capacity of his stomach. But the desire of [money] seems to have no limit or certain boundary."

Economists and psychologists have been wrestling with the relationship between money and happiness for decades. Humans devote much of their time and energy to earning it, seemingly motivated by the belief that money will have a substantial impact on their overall life satisfaction. However, given the current economic crisis is leading most organisations to freeze pay increases and withdraw bonus packages, this is undoubtedly going to lead to feelings of frustration and anxiety.

Research shows that people tend to drastically overestimate the impact that income has on well-being. For example, recent research in the Journal of Positive Psychology, found that people are notoriously bad at predicting the levels of happiness associated with differing levels of income. It is true that individuals who live on or below the poverty line tend to display lower levels of well-being - i.e. it hurts to be cold, hungry and tired. However, once people have achieved a threshold level of income to buy their way out of hardship, then our prediction that money and happiness grow together breaks down. Studies actually show that increases in income have increasingly less of an impact on actual levels of happiness.

So, why do we hold on to the erroneous belief that more money means more happiness? Why do we continue to stuff our pockets when we would not continue to stuff our faces?

The answer to these questions will be a continuing topic of debate amongst economists, psychologists, philosophers and...well, everyone for many years to come. However, what I do know is that people tend to attribute too much emphasis to this one variable, and overlook the plethora of other variables that positively impact global life satisfaction (love, friendship, esteem, variety, achievement, challenge, recognition...the list goes on). Perhaps the festive period is a chance for all of us to take stock and consider what really matters (in between mouthfuls of turkey).