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0Does Money Buy Happiness? Actually, Yes
Feb 12, 2024, Forbes
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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 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.
In contrast to happiness, Kahneman and Deaton found that life satisfaction increased steadily with income with no plateau. In other words, the more money 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.
