Does money buy happiness? It's an age-old question that has varying answers depending on who you ask. There have been many studies done through the years, including several that we feature here. The resulting answers to the question are more complex than simple; however, all point to the same set of solutions for creating the greatest amount of happiness for the greatest number of people. Let's dive in!
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In 1974, Richard Easterlin observed that decades of substantial, real income growth in the United States had not led to corresponding growth in happiness levels. The Easterlin Paradox, or Happiness Paradox, has been documented in the UK and more than three dozen countries throughout the globe, including developed and developing nations, those in transition to market economies.
Studies within countries find that wealthier people tend to be happier than poor people. Yet studies that compare countries, or look at a single country over a period of time find very little, if any, relationship between increases in per capita income and average happiness levels. On average, wealthier countries are happier than poor ones; happiness seems to rise with income up to a point, but not beyond it.
The Office of National Statistics (ONS) produced some research in 2014 related to this. Part of this research looked at the levels of life satisfaction for people in different jobs, plotted against typical earnings to see if there was a correlation between income and life satisfaction - see figure 2 below.
Image credit: Quarterly Blog UK Gov
While highly-paid Chief Executives and senior officials do well, take-home pay doesn’t seem to be the only important factor. Occupations like publicans (British pub owners) and members of the clergy, which have similar income levels, seem to have very different levels of wellbeing.
At an individual level, research tells us much about this. It has been estimated that between a fifth and a quarter of the variation in overall life satisfaction amongst employed people is explained by being in work. And it is fairly widely known that people are happier at work when they feel engaged with what they do, when they like and trust their managers, when they have secure and interesting work, and when they have some autonomy.
Since the Easterlin Paradox findings, two prominent studies on the connection between money and happiness have been done within the last 15 years. Though both were conducted by highly regarded researchers, they showed significant differences in their conclusions.
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2010 Kahneman/Deaton Study
The first was a foundational work published in 2010 by Princeton University’s esteemed researchers and Nobel Prize laureates, Daniel Kahneman and Angus Deaton. This study provided significant insights into how financial resources impact individual wellbeing.
Kahneman and Deaton's research showed that as annual income increased, there was a corresponding rise in day-to-day happiness, suggesting that financial stability plays an essential role in enhancing life satisfaction.
The study also highlighted a critical finding: after reaching an income threshold of approximately $75,000 (which translates to $108,513 in 2025), the correlation between income and happiness began to level off, indicating that additional income beyond this point does not substantially contribute to increased happiness. This plateau suggested that while having enough money to meet basic needs and enjoy certain comforts could significantly enhance one’s quality of life, there was a diminishing return on happiness as income continued to rise.
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2021 Killingsworth Study
In contrast to the findings presented by the Princeton study, a more recent investigation published in 2021 from the University of Pennsylvania provided a different perspective on the relationship between income and happiness. This study, led by renowned researcher Matthew Killingsworth, utilized real-time data collection from a diverse group of participants, allowing for a more nuanced understanding of how fluctuations in income can impact individual happiness.
Killingsworth's research revealed that happiness did not plateau at the previously established 2010 threshold of $75,000. Instead, his findings indicated a continuous and steady increase in reported happiness levels as income rose, suggesting that individuals experience ongoing improvements in their subjective wellbeing as their financial circumstances improved, regardless of how much they earned beyond that initial figure.
The study's design included a wide range of incomes and examined various factors that contribute to happiness, such as social relationships, work satisfaction, and personal fulfillment, which all appeared to play significant roles alongside financial resources. The research also highlighted that the relationship between income and happiness is complex and multifaceted, indicating that higher income can provide individuals with greater access to resources, experiences, and opportunities that enhance their quality of life.
2023 Adversarial Collaboration
To make sense of the seemingly contradictory findings of these studies, Kahneman and Killingsworth agreed to do a joint study in 2023 that explored the relationship between emotional wellbeing and the various aspects of life satisfaction. This study was a significant integration of psychology and economics, as it combines insights from both disciplines to understand how different factors contribute to an individual's overall happiness and fulfillment.
The methodology employed in this research was innovative. The team utilized a large-scale experience sampling method, which involved collecting real-time data from participants through mobile apps. This approach allowed researchers to gather immediate feedback on individuals' feelings and experiences as they went about their daily routines.
One of the key findings from this study was the distinction between two types of wellbeing: experienced wellbeing, which refers to the emotions and feelings individuals experience in the moment, and evaluative wellbeing, which pertains to how individuals assess their lives overall. Kahneman and Killingsworth found that while people often report high levels of life satisfaction when reflecting on their lives, their moment-to-moment happiness can vary significantly, based on their immediate circumstances and activities.
Additionally, the study highlighted the impact of various life circumstances, such as income, social relationships, and work-life balance, on overall wellbeing. It was revealed that while higher income levels can enhance life satisfaction, the effects tend to plateau after reaching a certain threshold, suggesting that beyond basic financial security, other factors play a more critical role in determining happiness.
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Two Real Life Applications
What takeaways are there from these studies, and what are the ties to economic mutuality and better capitalism? I would suggest that there are at least two lessons to be learned and applied:
Money Can Enhance Happiness . . .
Money can indeed play a significant role in enhancing happiness by alleviating financial stress and providing people with a sense of security and stability. The absence of financial worries can give a person access to and ability to focus on other, positive aspects of their lives without the constant anxiety that can accompany monetary concerns. Assuming that people can pay for day-t0-day expenses, have additional funds to save, afford occasional splurges, and stay within budget, this kind of financial happiness is achievable for a number of us.
We know, however, that there are many people out there who struggle to pay for the most basic of needs such as rent, groceries, and clothing. What can be done to bring more economic security to these folks? The long answer is the topic for a future post, but a short list would include a better educational model (from elementary through post high school), enforcement of antitrust laws to aid competition and lower prices, and a tax code that better promotes upward mobility toward and supports the middle class.
Beyond the mantra of just doing the right thing, though, why should we care about increasing everyone's financial stability? The more people that are brought into this position, the greater the overall happiness of a community can become. This is a natural result of financially secure individuals having time and resources to volunteer, support local businesses, or engage in civic activities. Crime also goes down in locations where more people's needs are met. The positive results for all are clear: a higher percentage of financially secure people results in a better, safer, and happier community for everyone.
2. . . . But Only to a Point
Past a point where all needs and most wants are met, people often find themselves in a state of financial happiness that transcends mere accumulation of wealth. At this juncture, the basic necessities of life—such as food, shelter, healthcare, and education—are adequately fulfilled, and many of the desires that enhance quality of life, like travel, leisure activities, and hobbies, are also satisfied.
When people reach this stage of financial stability, they often discover that the acquisition of more wealth or possessions does not significantly enhance their overall happiness. The pursuit of excess beyond this point can actually lead to stress and anxiety, as individuals may feel pressured to maintain or elevate their financial status.
As too many people have found out after they incurred upward mobility debt, it's not the amount of money coming in that counts; it's the ratio of income to output.
The desire for more can also create a cycle of dissatisfaction, where the joy derived from new acquisitions quickly fades, leading to a constant craving for the next item or experience. Seeking more than what is necessary becomes not only unnecessary but potentially detrimental to one's overall wellbeing and a potential barrier to genuine contentment and happiness.
While money itself is not the sole determinant of happiness, its ability to reduce financial stress is undeniable. It's essential that we all actively work towards creating systems of economic mutuality that can uplift more individuals, allowing them to experience the benefits of financial security, and thus raising the overall wellbeing in a given community.
On the other hand, those of us who have gained financial happiness need to remember that while it makes our lives better and easier, it is not the ultimate source of joy. Keeping perspective on the place that money should have in our lives can help us avoid the traps in which many people have been caught.
I am struck once again by the wisdom of Proverbs 30:8b-9:
Give me neither poverty nor riches!
Give me just enough to satisfy my needs.
For if I grow rich, I may deny you and say, “Who is the Lord?”
And if I am too poor, I may steal and thus insult God’s holy name..
As we start the new year, I hope we will both strive toward making economic mutuality a reality in our corner of the world, and also not forget that money is just one part of the happiness formula.
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