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Does Money Buy Happiness? Actually, Yes

John Jennings Contributor
John Jennings covers investments & issues that affect Follow
wealthy families

Feb 12, 2024, 09:33am EST

Updated Feb 12, 2024, 10:11pm EST

Making more money is associated with being. happier SHUTTERSTOCK

Sometimes, ideas become accepted knowledge even though they are not based in
fact. Prime examples are that the only human-made object that can be seen from
space is the Great Wall of China, that lemmings periodically engage in mass suicide,
that heat escapes mostly from our heads, and that we only use 10% of our brains.
None of those are true.

Another notion that has become accepted wisdom is that making more money
increases happiness, but only to $75,000; that’s also wrong. Research suggests there
is no $75,000 happiness threshold for most people — higher income does indeed
correlate to more happiness.
The $75,000 Study

It’s oddly satisfying to think that rich people aren’t any happier than the middle
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class. This belief is supported by a widely publicized 2010 study led by Daniel
Kahneman and his Princeton colleague, Angus Deaton — both winners of the Nobel
Prize in Economics — which concluded that happiness only increases with income up
to $75,000. After that, they claimed, additional income doesn’t impact overall
happiness.

Based on survey data from 450,000 Americans, the study examined the relationship
between income and the concepts of “emotional well-being” and “life satisfaction.”
Emotional well-being is how good or bad we feel in the moment — it’s a proxy for our
level of happiness (I’m going to refer to emotional well-being as happiness in this
article). Life satisfaction is a broader concept; it’s whether we think we’re living a
good life and are satisfied with our life circumstances overall.

Kahneman and Deaton found that happiness increased with income, but only to a
point — there was no further progress beyond about $75,000 ($108,000 in today’s
dollars). They theorized that the plateau occurs because satisfying basic needs is
challenging at lower income levels, and those daily challenges negatively impact
happiness. Lack of money is associated with stress, poorer health, less leisure time,
and greater emotional pain. But once people make enough to move beyond meeting
their basic needs and can afford things like a house and a car, take vacations, and
gain financial security through savings, making more money doesn’t move the
happiness needle. The authors’ theory is that above $75,000 of income, happiness is
driven by things like the quality of one’s relationships, health, and leisure time, and
money isn’t a factor.

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In contrast to happiness, Kahneman and Deaton found that life satisfaction
increased steadily with income with no plateau. In other words, the more money
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people make, the more satisfied they are with their lives. This makes intuitive sense
because making more money positively correlates with achievement and career
success, and that sense of accomplishment can boost satisfaction with one’s life.

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The Killingsworth Study

University of Pennsylvania professor Matthew Killingsworth authored a paper

published in 2021, which also examined the influence of income on happiness and
life satisfaction. He used a research method known as real-time experience sampling,
where 34,000 volunteers were pinged a few times a day via their smartphones and
asked about their feelings and emotions in the present moment. They were also
surveyed about their income and satisfaction with their lives.

Using this data, which constituted over 1.7 million experience samples, Professor
Killingsworth found that larger incomes “were robustly associated” with both greater
happiness and greater life satisfaction. Further, there was no observed plateau in
either happiness or life satisfaction at $75,000 or any other level. As income
increased, positive feelings increased, and negative feelings decreased.

The Collaborative Paper

The fact that two studies, each by respected researchers, would have conflicting
conclusions was troubling. Which was correct? In 2023, Kahneman and
Killingsworth published a collaborative paper (along with Professor Barbara Mellers
of the University of Pennsylvania) that reconciled the contradictory results of the two
studies and determined that neither had it exactly correct.
The problem with the $75,000 paper was that the measurement of happiness was
too coarse: In the survey, people reported merely being happy or unhappy, and there
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was no graduated scale. That meant that once you reported that you were happy,
there was no way to report getting happier, and most people—including those with
lower incomes—reported that they were happy. The problem in the Killingsworth
paper was that he didn’t notice that the happiness of the least happy 20% of the
population didn’t improve once those people hit about $100,000 of income.

After re-examining the data, the authors of the collaborative paper concluded that
more money is associated with more happiness for most, but not all, people. For
80% of people, happiness continues to rise with income past $75,000. But for an
unhappy minority, those individuals’ unhappiness diminishes as they make more
money — but only up to about $100,000 (about the same as $75,000 adjusted for
inflation).

“If you're rich and miserable, more money won't help,” said Killingsworth in a
UPenn release. Further, the extent to which money affects happiness differs for
people with different levels of emotional well-being. According to the UPenn release,
the collaborative 2021 paper found that “for the least happy group, happiness rises
with income until $100,000, then shows no further increase as income grows. For
those in the middle range of emotional well-being, happiness increases linearly with
income, and for the happiest group, the association actually accelerates above
$100,000.”*

Why Money Increases Happiness

There are obvious advantages to having more money. You can live in a nicer house
and drive a nicer car, take better vacations, provide quality education for your kids,
gain improved access to medical care, and have a more comfortable retirement.
These are all good things, for sure, but they may not move the happiness needle
much because we adapt to improved lifestyles. So, why might money foster increased
happiness? There are multiple reasons:

Not having money is associated with challenges and difficulties. According to

late happiness researcher Ed Diener (who was known as “Dr. Happy”) in his
book Happiness, “Financial resources can serve as a buffer against life’s
negative events.” Having more money means avoiding the stresses and
worries that being poor bring.
 We evolved during scarcity, so we seek abundance. As our income increases,
we feel closer to having “enough”— we aren’t threatened by scarcity.
BETA University of Texas professor Raj Raghunathan notes in his book If You’re So
Smart, Why Aren’t You Happy?, that feeling like we have enough is crucial to
happiness: “When we are feeling abundant, life seems like a cozy mess:
perfect despite its imperfections.” Likewise, Ed Diener thinks “there might be
some primal connection between the secure feeling of having resources and
the happiness money can deliver.”

Having more money leads to more choices, freedom, and feeling more in
control of our lives and circumstances. Sociologist Rachel Sherman
interviewed wealthy New Yorkers about their feelings about wealth for her
book Uneasy Street: The Anxieties of Affluence, and a typical response to her
query about the benefits of being wealthy was that it provided freedom and a
sense of control. This feeling of control and autonomy is a crucial ingredient
of how we feel about our lives.

Money alone may not make us happy, but it is a resource that, if used
correctly, can enhance happiness. Research shows that using money to buy
experiences rather than things, using it to help others, to develop or deepen
relationships, and buying time by hiring others to do things you don’t like to
do will add to your overall psychological well-being.

Thus, the findings of the collaborative paper appear to ring true: Making more
money is linked with more happiness.

But Be Careful

Yes, making more money is correlated with being happier. Still, we need to be careful
not to put too much emphasis on money when seeking happiness – more money, on
its own, doesn’t guarantee greater happiness for four reasons.

First, research in the November 2022 issue of PNAS Nexus found that the
correlation between money and happiness is slight. People earning more money tend
to be happier than those making less, but how money affects happiness varies by
individual, which means there’s an overlap in happiness among people at various
income levels. For example, in a 1983 survey of individuals on the Forbes 400 list of
the wealthiest Americans, Diener found that those with tremendous wealth were just
a bit happier, on average, than those in the middle class, and a proportion of those
uber-wealthy individuals were less happy than regular folks.
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Next, as your income increases, it has a diminishing influence on happiness. If you
make $50,000 annually, a $10,000 raise is relatively huge, while if you make
$500,000, a $10,000 increase is barely noticeable. Professor Killingsworth explains
in his 2021 research paper that for “two households earning $20,000 and $60,000,
respectively, [they] would be expected to exhibit the same difference in well-being as
two households earning $60,000 and $180,000, respectively.”

Third, happiness and life satisfaction are determined by myriad factors, such as your
genetics, your health, the quality of your relationships, how much leisure time you
have (and too much can be as destructive as too little), to what extent you feel that
your life has purpose and meaning, how satisfied you are with your job, and so on.
While money can boost your happiness, those other factors will significantly impact
your overall psychological well-being more than money alone will.

Finally, beware of a money and happiness paradox. Given the benefits of having
money, you’d think that achieving financial success should be a top life goal. Seek
more money, get more money, and reap the happiness benefits of having more
money. Right? Wrong. A 2003 study published in Psychological Science led by
Daniel Kahneman and Ed Diener found that even though having more money is
associated with happiness, seeking more money dampens our sense of life
satisfaction and impairs our happiness. They found that people with strong financial
success goals reported lower satisfaction with family life, satisfaction with
friendships, and job satisfaction. Notably, the study found that “the greater your goal
for financial success, the lower your satisfaction with family life, regardless of
household income.” This paradox teaches that money boosts happiness when it is a
result, not when it is a primary goal, or as Ed Diener noted in his book Happiness, “It
is generally good for your happiness to have money, but toxic to your happiness to
want money too much.”

And a final word of caution: More income is correlated with happiness but it may
not be a cause happiness. Indeed, it’s possible that causation may run in the opposite
direction — happier people may tend to make more money than less happy ones.

Conclusion
While the link between income and happiness is real, it's modest and conditional.
We must be careful not to overemphasize money's role in happiness. Happiness is a
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complex topic involving various factors —money being just one of them. Genetics,
health, relationships, leisure time, and purpose likely matter more for well-being
than dollars alone. As the Beatles sang, “Money can't buy me love.” Yet, used wisely,
money can enhance our sense of well-being and improve our lives.
Follow me on Twitter or LinkedIn. Check out my website.
*The happiness correlation with income is with (log)income – meaning that it takes more and more money to
increase happiness.

John Jennings Follow

John Jennings covers investments and issues that affect wealthy families. He is the president
of St. Louis Trust & Family Office, a multi-family office and... Read More

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