What happiness that money can buy?

The best-known theory on this topic is that money can buy happiness, but only up to a point. This comes from a study by two Nobel Laureates, Daniel Kahneman and Angus Deaton (2010) , which found that emotional wellbeing rises with income. However, it rises logarithmically.

givingwhatwecan.org - Can money buy happiness? A review of new data

How can I deep clean my brain?

How To Deep Clean Your Mind Practice mindfulness. You can practice mindfulness through meditation or just by focusing on staying present throughout...

Last updated Jul 23, 2022

What types of videos go viral?

Music videos, comedy sketches, pet videos, and film trailers are all categories ripe for going viral — sometimes overnight.

Last updated Apr 19, 2020

Awaken your dormant DNA ability to attract wealth effortlessly

Promotion

Blog post

Everyone knows the adage "money can't buy happiness," although few of us seem to believe it. It is clear that being wealthy does not guarantee happiness; there are many who are tremendously wealthy, yet entirely unhappy. Of course, anecdotal evidence is sometimes misleading, so we have written previously on what data suggests about the relationship between money and happiness. The best-known theory on this topic is that money can buy happiness, but only up to a point. This comes from a study by two Nobel Laureates, Daniel Kahneman and Angus Deaton (2010) , which found that emotional wellbeing rises with income. However, it rises logarithmically. That is, as an individual's income increases, their wellbeing increases at a slower and slower rate. And after income surpasses about $75,000 per year, Kahneman and Deaton's data suggests, wellbeing stops increasing altogether. However, new research by Matthew Killingsworth (2021) challenges this finding: the paper, entitled "Experienced well-being rises with income, even above $75,000 per year," gives us reason to think that we should take a closer look at the link between money and happiness, with an important caveat. As we argue in this piece, a more accurate title for this paper might be: "Money barely increases happiness above $75,000 per year — unless you really value money, and even then not by much."

A look at the literature

In 2010, Kahneman and Deaton's study examined the link between income, emotional wellbeing, and overall life evaluation. Kahneman and Deaton's study relied on a survey of 450,000 American respondents that contained questions about emotional wellbeing, life satisfaction, and reported family income. After examining the data, the pair famously concluded that happiness remains basically unchanged once household income exceeds $75,000, though overall life evaluation keeps improving. The key conclusion is that incomes over $75,000 buy life satisfaction, but not happiness.

Chart reproduced from Kahneman and Deaton (2010)

Conversely, Killingsworth’s recent study takes advantage of technology to revisit the relationship between income and happiness. The new study used a smartphone app to periodically ask a large sample of people how they felt throughout the day on a continuous scale from “very bad” to “very good.” By contrast, the 2010 study asked people to recall how they felt in the past. As Killingsworth points out, the 2010 study’s methodology is “vulnerable to memory errors and biases in judgement.”1 Contrary to Kahneman and Deaton’s study, Killingsworth found that happiness and life satisfaction continue to increase with household income, even after income surpasses $75,000.

Chart reproduced from Killingsworth (2021)

How can I invest in property with little money?

Even without a cash deposit. Use existing equity. If you have equity in your existing home or other investment properties, you can borrow against...

Last updated Sep 30, 2020

How do you test for mold exposure?

A blood test, sometimes called the radioallergosorbent test, can measure your immune system's response to mold by measuring the amount of certain...

Last updated Mar 27, 2019

Awaken your dormant DNA ability to attract wealth effortlessly

The simple yet scientifically proven Wealth DNA method laid out in the report allows you to effortlessly start attracting the wealth and abundance you deserve.

Learn More »

Promotion

Does that mean that money makes a big difference in happiness and that you should go work at Goldman Sachs? Not so fast. Note that Killingsworth’s graph uses a logarithmic x-axis for income (echoing Kahneman and Deaton 2010) and the y-axis uses z-scores, a measure of standard deviation that won’t have much intuitive meaning to anyone unfamiliar with statistics. Here’s the data for experienced wellbeing, but plotted with different axes.

Three comments:

A doubling of income is associated with about a 1-point increase on a 0–100 scale, which seems (to our eyes) surprisingly small. If we change the y-axis to display a linear relationship, this tells a different story. In fact, we see a plateauing of the relationship between income and experienced wellbeing, just as found in Kahneman and Deaton (2010), but at a later point — about $200,000 per year. Perhaps the most interesting result, which was mentioned in the body of the paper, was that the association between money and happiness was strongly moderated by individuals' answers to "How important is money to you?" This raises an interesting question about causality: do people value money because they know it makes them happier, or does it make them happier because they value it? Either way, we are left with a satisfyingly nuanced twist. While money may matter less than we expect, individuals nevertheless seem to know how much it matters for themselves compared to others. While it is true this paper finds money is correlated with happiness for incomes past $75,000, we should be careful not to overinterpret this evidence. (Obligatory note: correlation does not imply causation. ) The association is quite small — perhaps underwhelmingly small — and a large part of the explanation is driven by whether people believe (or have learned) that money matters to them. So, it might be better to say: money can buy happiness, but you might be surprised at how little it buys. If money doesn't make you happy then you probably aren't spending it right The previous point raises the question: doesn't it matter how people spend their money? Surely there are better and worse ways to spend it. A great paper on this topic is If money doesn't make you happy then you probably aren't spending it right . In it, the authors make the following suggestions: Buy more experiences and fewer material goods. Use money to benefit others rather than yourself. Buy many small pleasures rather than fewer large ones. Eschew extended warranties and other forms of overpriced insurance. Delay consumption. Consider how peripheral features of your purchases may affect your day-to-day life. Beware of comparison shopping. Pay close attention to the happiness of others. As you might expect, we want to focus on the happiness from helping others. There is some evidence that prosocial spending (i.e., spending money to benefit others) improves the spender's happiness. In one experiment, participants were given money and then randomly told to spend it on themselves or others. As it turns out, those who spent it on others reported higher levels of happiness at the end of the study.

Which mantra is powerful for confidence?

8 Powerful Self-esteem Mantras for Meditation There is just one me. I am enough, worthy of friendship and love, just as I am. My value is not...

Last updated Jul 24, 2019

What benefits do rich people have?

Better Education – Those raised in wealthy households generally live in wealthier neighborhoods. These neighborhoods typically have better school...

Last updated Nov 21, 2021

Awaken your dormant DNA ability to attract wealth effortlessly

The simple yet scientifically proven Wealth DNA method laid out in the report allows you to effortlessly start attracting the wealth and abundance you deserve.

Learn More »

Promotion

So one reason to give is that it will probably make you happier than the other ways you could spend your money, especially if you're already earning a lot of money. The other (probably bigger) reason is that it can substantially increase the happiness of others too. Killingsworth's study suggests that doubling Jane's income from $500 to $1,000 increases Jane's happiness by the same amount as doubling John's income from $100,000 to $200,000 increases John's happiness. However, that $100,000 increase for John could instead be used to increase the happiness of 200 others like Jane by the same amount. That's quite a bargain!

Conclusion

Killingsworth's study has advanced our state of knowledge on the link between money and happiness through the use of a clever research design. The new data suggests that increases in happiness don't stop after an individual reaches an income of $75,000. Instead, the increases continue, and perhaps plateau, at a later point. However, this new insight doesn't significantly change the conclusions drawn after Kahneman and Deaton's 2010 study. It seems that chasing ever-increasing amounts of money is an ineffective way to find happiness for ourselves. On the other hand, giving to highly effective charities is a great way to make others feel happier. Those of us who live in high-income countries have an exciting opportunity to significantly improve the lives of others by pledging to donate 10% of our income over the course of our careers. Even better, we might find ourselves much happier while doing so.

What happiness that money can buy?

How can I deep clean my brain?

What types of videos go viral?

Blog post

A look at the literature

Chart reproduced from Kahneman and Deaton (2010)

Chart reproduced from Killingsworth (2021)

How can I invest in property with little money?

How do you test for mold exposure?

Awaken your dormant DNA ability to attract wealth effortlessly

Three comments:

Which mantra is powerful for confidence?

What benefits do rich people have?

Awaken your dormant DNA ability to attract wealth effortlessly

Conclusion

Discover our top charities

Further reading

How can I satisfy my woman every time?

What assets never lose value?

Awaken your dormant DNA ability to attract wealth effortlessly

How do I get rid of money scarcity mindset?

Awaken your dormant DNA ability to attract wealth effortlessly

How can I build my wealth in my 40s?