On money and happiness
More money = greater happiness? Everyone ultimately has to decide for him- or herself whether this equation adds up. However, the latest findings from the field of happiness research indicate that a fundamental correlation between money and happiness really does exist up to very high income and wealth levels. A happiness plateau, in contrast, is verifiable only among a small percentage of people. But that isn’t necessarily bad news. On the contrary, knowledge about the correlation between wealth and happiness may motivate people to concern themselves more (or with greater pleasure) with investing their money in the future.
What is happiness?
Science has been studying the correlation between money and happiness for decades now, but “happiness research” is neither pure esotericism nor just a hobby for underemployed academics. This interdisciplinary field of research combines psychology, sociology, economics, and neuroscience, and bases itself on empirical studies. The findings of happiness research have practical consequences – for public policymaking and education, the employment market, the healthcare sector, and for every individual. But what is money (in the research sense)? And how is happiness defined?
In most studies, money is defined as a person’s income. It is easy to measure, and income data are regularly collected across a variety of different demographic groups. In some investigations, on the other hand, wealth (defined as all financial resources) is the subject of consideration. The complex construct of happiness, which the research often defines as “subjective well-being,” likewise has two dimensions: emotional well-being, which refers to the daily experience of positive feelings (joy, contentment) and negative ones (stress, unhappiness), and life satisfaction, i.e. the answer to the question “How content are you with your life (on the whole)?”
Old certainties…
Due to the different definitions of money and happiness, the spectrum of happiness studies is relatively wide. Nevertheless, some research findings are generally considered established certainties. In one of the most famous studies from the field of happiness research, back in 1974 Richard Easterlin found that although wealthy people within a society are happier than poor people, the aggregate happiness of that society does not trend upward over time as the average income level rises (an observation that came to be known as the Easterlin Paradox).1 Not just absolute income, but also relative income (how much a person earns compared to others) both have an effect on one’s personal feeling of happiness. Another equally established finding is that although satisfaction with life increases as income rises, the incremental gains in satisfaction continually get smaller, a phenomenon called the “diminishing marginal utility of income.”
…and the discovery of the happiness plateau
A study by Daniel Kahnemann (the winner of the 2002 Nobel Prize in economics) and Angus Deaton2 made more prominent headlines in 2010. In their investigations, they not only found a diminishing marginal utility of income, but also an income threshold beyond which happiness in the sense of (day-to-day) emotional well-being does not increase any further. They pinpointed that happiness plateau for a one-person US household at an annual income of USD 75,000. The finding that “money can buy happiness,” but only up to a certain point, was picked up by the media with enthusiasm in some quarters and influenced the scientific understanding of happiness.
A study by Andrew T. Jebb et al.3 in 2018 delivered more fodder of the same flavor. Using data from the Gallup World Poll of 1.7 million people in 164 countries, the authors identified not just a plateau in emotional well-being, but also in general life satisfaction. Depending on the region and education level looked at, the happiness plateau was located between USD 35,000 (Latin America/Caribbean) and USD 125,000 (Australia/New Zealand) and between USD 70,000 (low education) and USD 115,000 (high education). In addition, the maximum happiness threshold was a bit higher for women than for men (USD 100,000 vs. USD 90,000). The global average maximum life satisfaction plateau was calculated at USD 95,000. The researchers additionally made another discovery: in some regions, well-being declined at very high income levels (above the identified plateaus). Jebb et al. conjectured that the explanation for this observation lied in the elevated expectations, greater stress, or social comparisons that go hand in hand with a high income. Having a lot of money causes unhappiness – whoever wished to could also interpret this oft-cited, (seemingly) broad-based study from 2018 that way. In any case, it befitted a time in which many people are giving thought to their work-life balance and apparently are increasingly concluding that “money isn’t everything.”
More money equates to more happiness after all
As interesting as the concept of a happiness plateau seemed, certain doubts about this theory of “the unhappy rich” likely existed at least among some recipients of the study back then. The cognitive dissonance presumably afflicting many a reader of that study was resolved at the latest by Wharton School (University of Pennsylvania) senior fellow Matthew A. Killingsworth, who has arguably been one of the most active happiness researchers in recent years. In his 2021 paper titled “Experienced well-being rises with income, even above USD 75,000 per year,” he found that day-to-day well-being and general life satisfaction both continually increase up to an income of (at least) USD 500,000 per year, confirming the findings of earlier studies that found a logarithmic correlation between money and happiness (meaning, for example, that the difference in emotional well-being and life satisfaction between incomes of USD 20,000 and USD 60,000 per year is roughly the same as between incomes of USD 60,000 and USD 180,000 per year).
At the same time, Killingsworth exposed certain deficiencies in the aforementioned studies from 2010 and 2018. He showed that the happiness plateaus observed in those investigations were the result of inappropriate study designs. The income groups in the older studies were categorized in very rough brackets (e.g. USD 60,000–90,000), and all incomes above USD 120,000 were pooled in a single group. Another problem was that emotional well-being was not measured on a continuous scale, but was only differentiated dichotomously between “good” or “bad.” Finally, Killingsworth discerned yet another problem: the old studies ultimately examined the correlation between money and remembered feelings (which were surveyed in retrospect), but not between money and emotions in real time. So, for his own investigation, Killingsworth used a smartphone app that spontaneously pinged the study participants to ask them how they felt right at that very moment. To fix the other design flaws, he collected very granular income data, included also high earners (with incomes of up to USD 500,000 per year), and surveyed emotional status on a continuous scale.
However, Killingsworth, too, can only speculate as to why income correlates at all with well-being. His supposition that people with lower incomes have sources of discomfort that can be eliminated with money is at least very plausible. Equally obvious is the presumption that greater prosperity is synonymous with more financial security (and fewer financial worries). And one last finding also jibes with what’s observable in the real world: the correlation between money and happiness is not equally strong for all people.
Killingsworth researched this last point again in more detail in 2022. In an “adversarial collaboration” with Kahnemann,4 who spotted a happiness plateau for the first time in 2010, Killingsworth made a discovery that further differentiated his previous findings and at least partially rehabilitated the concept of a happiness plateau. That insight on the cutting edge of happiness research is that for the “unhappiest people,” there really is a kind of happiness plateau beyond which a higher income does not bring (almost) any additional happiness. And it’s the exact opposite for the “happiest” people: their happiness actually even accelerates as their income increases.
An evident correlation… | …but not necessarily a causal one
Annual income and life satisfaction
Sources: Killingsworth, M. A. (2024). Money and Happiness: Extended Evidence Against Satiation. Happiness Science., Kaiser Partner Privatbank
Happiness of the wealthy
Despite all of the insights gained, there is still one question that all of the studies discussed thus far leave unanswered: How happy are the very wealthy whose financial resources add up to amounts well in seven- or even eight-digit territory? Matthew A. Killingsworth devoted himself to examining also that question this year. However, the sparse availability of data proved to be a challenge (Killingsworth conjectured that “Maybe rich people are not inclined to spend their free time doing surveys.”). But he did find two reference points that enlarge the upper spectrum of the previous research (which took annual incomes of up to USD 500,000 into account). One of them is a recent study by Donelly et al.5 that involved over 2,000 participants, of which the median group possessed personal assets ranging between USD 3 million and USD 7.9 million. The other reference point is an influential but smaller study6 in which nearly 50 rich individuals on the 1983 Forbes 400 list of wealthiest Americans participated. Both studies define happiness as satisfaction with life on a scale from one to seven and are compatible with the methodology employed by Killingsworth. The outcome of the analysis clearly shows that very wealthy people are much happier (more satisfied) than even the highest-earning income group. This gives reason to suspect that the (increasing) correlation between money and happiness extends far beyond incomes amounting to several hundred thousand dollars per year. Another compelling finding is that the difference between high earners and the two samples of wealthy individuals is statistically significant (as evidenced by the non-overlapping 95% confidence intervals).
Positive interpretation
What conclusions can be drawn from the latest findings from the field of happiness research? One might be tempted to view the constant correlation between more money and greater happiness as bad news. Maybe it would make life easier if happiness plateaued at a modest wealth level. Then everyone could rationally turn his or her attention to other things once he or she has “enough” money. However, the existence of a happiness plateau would also mean that people wouldn’t be able to imagine things that would improve their well-being, and/or society and the economy wouldn’t be capable of providing them. We obviously do not live in that kind of world – fortunately perhaps. Money contributes to – among many other things – happiness in life. Not for everyone, but for many people. This realization may help people rethink their relationship with investing and growing their wealth. That would give a boost not only to the numbers in their asset accounts, but also to their well-being.
1 R. Easterlin (1974): “Does economic growth improve the human lot? Some empirical evidence”
2 D. Kahnemann, A. Deaton (2010): “High income improves evaluation of life but not emotional well-being”
3 A. T. Jebb, L. Tay, E. Diener, S. Oishi (2018): “Happiness, income satiation and turning points around the world”
4 M. A. Killingsworth, D. Kahnemann, B. Mellers (2022): “Income and emotional well-being: A conflict resolved”
5 G. E. Donnelly, T. Zheng, E. Haisley, M. I. Norton (2018): “The amount and source of millionaires’ wealth (moderately) predict their happiness”
6 E. Diener, J. Horwitz, R. A. Emmons (1985): “Happiness of the very wealthy”