True happiness, said Bob Monkhouse, is when you marry a girl for love and later discover that she has money. We all appreciate the joke, of course, because though one side of us knows that a loving relationship provides a good chance of happiness the other thinks it would be guaranteed if that relationship made us rich as well.

Yet study after study shows that money fails to buy happiness. Incomes have increased threefold in Britain since 1950 but contentment levels have barely shifted. European research indicates that lottery winners revert to their previous levels of happiness within a year of their windfall. One look at the permanently sullen face of the multi- millionairess Victoria Beckham appears to prove the point.

A new report goes further and suggests that chasing wealth might even make you mentally ill. Paranoia, narcissism and attention deficit disorders are just some of the afflictions more likely to dog you if you pursue purely materialistic goals, it says.

But more controversial, perhaps, is that this report comes from an investment bank where money, presumably, is God. James Montier, its author, is global equity strategist for Dresdner Kleinwort Wasserstein and has produced his report from research drawn from around the world.

Somewhat heretically for a bank employee, it is entitled It Doesn’t Pay: Materialism and the Pursuit of Happiness. Understandably this has been greeted with scepticism by some brokers whose raison d’être is their annual bonus. But Montier says that, as a strategist, he wants to know what makes people tick. He recently wrote a paper on the psychology of happiness and his first rule was: never equate it with money.

Once you are earning £25,000 and upwards, he ventures, and your basic needs for food, shelter and healthcare are covered, money becomes increasingly irrelevant to genuine happiness. By the time you reach Bill Gates’s level the difference is probably negligible. If you want to raise your happiness level, he says, spend your money on experiences (a safari/Himalayan trekking/a concert) rather than a Rolex, a yacht or a Ferrari because they will bring you more joy in the long run.

There are psychological reasons for this. Material possessions are vulnerable to the “hedonic treadmill”, says Montier, whereas experiences are not. In other words, we quickly get used to new things and they become part of our norm. “We might get a new fast car and at first be out washing it every weekend but six months later we have become accustomed to it, the kids have scuffed up the seats in the back and the boot is full of dog hairs, ” he says. “This is hedonic adaptation at work . . . material possessions are likely to be assimilated relatively fast.”

Mrs Beckham bought her husband a £200,000 Rolls-Royce Phantom last Christmas. Will it have made him any happier than the fleet of vintage and sports cars that he already owns? Will the £1.2 million diamond and ruby necklace he bought to add to her collection have raised her spirits more than temporarily? The answer is almost certainly no. Will two diamond necklaces make you any happier than one? Will three holiday homes raise your quality of life more than two? You can only be in one place at one time; drive one car at a time. As Dr Clive Wood, director of the Happiness, Personality and Health course at Cardiff University, says: “Nowadays acquisition is very important. People believe that if they win the lottery they will become hugely happier, and for a while they do, but human beings have a surprising capacity to return to where they started. The problem is that once you’re wealthy you become habituated to being wealthy and you want to know what the next thing is. We’re constantly striving, which stops us being happy.”

Experiences, on the other hand, become more valuable to us as time goes on. Their charm does not wear off but increases as experience is central to our identity. “Experiences seem to be open to positive review,” says Montier. “For instance, I have recently returned from diving in the Red Sea. The boat we were living on was an unmitigated disaster, from fires in the engine room to diesel fumes being pumped into the cabin.

However, looking back, the things I remember most were a couple of stunning dives. We create our own revisionist histories with experiences. This isn’t available to a solid, hard material possession.”

So what makes people happy? Here is what a random sample of staff in The Times office say: “Watching Desperate Housewives with a bottle of wine and a large pizza”; “Going for a walk by the Thames on a sunny day with my three-year-old daughter”; “Sex”; “Finding a lovely pair of shoes to fit my unusually big feet”; “ My football team winning in the 90th minute”; “Looking at my little house when it’s all clean and tidy and counting my blessings”; “Tea, crumpets and a good book in front of the fire in winter”; “My faith”.

You will notice that there isn’t a single note of materialism in this list. True, journalists on national publications aren’t badly paid, and many will fall comfortably into the £25,000-plus bracket. But when people are made to think about what makes them happy, it is seldom that their thoughts drift towards money. And yet still we envy those who have it.

“We have a bizarre idea of what we need,” says Montier. “People very often talk about needing the latest fashionable clothes or needing the newest, trendiest technological toy, often exacerbated by an insistence on social comparisons, keeping up with the Joneses. But happiness should be an absolute concept, not a relative one. ”