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MONEY BUYS HAPPINESS—but it may not buy us very much. Indeed, no matter how much we earn and no matter what other steps we take to boost happiness, we may discover the impact is modest and fleeting.
That brings me to a recent academic debate. In 2010, Princeton University’s Angus Deaton and Daniel Kahneman noted that happiness, on average, didn’t appear to increase beyond an annual income of $75,000 or so—a finding that’s since been widely reported in the mainstream media. But in 2021, University of Pennsylvania’s Matthew Killingsworth contradicted that claim, saying there was no $75,000 limit. Instead, his research showed that happiness rose with income, though at a slower rate at higher income levels.
Who’s right? In a new study, Kahneman and Killingsworth collaborated, with help from Barbara Mellers, to resolve their conflicting findings. The upshot: They found that the 2010 study’s results were skewed by the least happy 20% of the population. Exclude these folks, and it seems rising income does, on average, lead to greater happiness.
“The suffering of the unhappy group diminishes as income increases up to 100k but very little beyond that,” write the authors. “This income threshold may represent the point beyond which the miseries that remain are not alleviated by high income. Heartbreak, bereavement, and clinical depression may be examples of such miseries.”
But here’s what I found most intriguing: While the authors found that more money typically boosts happiness, they also observe the relationship between income and happiness “is weak, even if statistically robust.” In fact, they go on to note that “the difference between the medians of happiness at household incomes of $15,000 and $250,000 is about five points on a 100-point scale.”
Think about that: A household with an income that’s well over three times the national average isn’t a whole lot happier than one living at or below the poverty level. Moreover, the original Deaton and Kahneman study suggests a quadrupling of income may have less impact on someone’s happiness than having a headache, being alone or suffering a chronic health condition.
Indeed, if we’re looking to boost our happiness, we should focus not just on money, but also on two other key areas. In his book An Economist’s Lessons on Happiness, Richard Easterlin—considered the father of happiness economics—discusses an unusual open-ended survey that social psychologist Hadley Cantril oversaw in the early 1960s in 13 countries—wealthy and poor, communist and not—where folks were asked what would make them completely happy, and also what would make them unhappy. “To me, these answers tell us what’s foremost in determining people’s happiness,” writes Easterlin.
So, what did folks in the 13 countries say? “Leading the list in every country are three items: economic concerns, family circumstances, and health,” Easterlin summarizes. “Mentioned most frequently, often by as much as 80% of the population, are things relating to one’s economic situation—concerns about the standard of living, work, or leisure time. Next in importance, cited by around 40-50% of the population, are matters relating to family circumstances—good family relationships and concerns about one’s children. Named just about as frequently are issues regarding the health of oneself and one’s family. Concerns about these three things—economic situation, family, and health—are by far the topics people most frequently mention when they are asked what’s important for their happiness.”
In other words, while getting a pay raise may boost our happiness, we might get just as much mileage from striving to improve our health or our relationship with family members. That said, even if we do these things, the net result may be modest—because there’s something that’s even more important to happiness than money, health and family.
At issue is our happiness set point. While we might do things that make us momentarily much happier, such as going on vacation or going out to dinner, it’s hard to raise our long-term, base level of happiness. It seems each of us has a happiness set point—a predisposition to be happy or not—that might account for as much as 80% of our happiness level.
The upshot: Getting in better shape or hitting some portfolio milestone might make us somewhat happier, but the effect will likely be marginal. That doesn’t mean we shouldn’t strive for such goals. I think we should all be thoughtful about how we lead our lives with an eye to boosting happiness. But if, the day after your boss tells you about the big promotion, you wake up feeling like your world isn’t a whole lot better, don’t be surprised.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.
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Lots of good comments. I would only add that happiness (however we define this) is not a one dimensional state of being, but is driven by many factors. Money (or its absence) can certainly be one of those factors, but as many have noted, your up bringing, job, life partner, etc., etc., are also important. Having grown up in a family that came of age during the Great Depression, I am happy to having finally reached a stage of life where I didn’t need to worry about money, but having more money wouldn’t add much.
These are all great follow-up comments. And I know we’re in a woke cultural setting now.
But nowhere is it mentioned in these comments much less in the happiness surveys the subject of being different/abnormal growing up.
What about growing up being perceived as too ugly, fat, dumb, handicapped by deformity physically or mentally? Especially in the teen and young adult years when you are shunned and put down by others. You just don’t “fit-in”!
Combine that with being in a dysfunctional family.
Yea… tell me about happiness then!
I think you’re onto how important your inner life is compared to the outside stuff. Agreed that it never completely goes away.But as time goes on you hopefully realize more and more that it wasn’t your dirty laundry, even though you are now accountable to clean it up. It doesn’t have to run your life. There is even a perk for going through what you describe. You become useful to others who’ve had similar experiences.
I don’t mean to sound bitter. But it really hurts and it never really goes away with age.
Great article, Jonathan. I agree completely about the vital importance of health and family in determining our level of happiness. I also think it’s true that each of us has a “happiness set point,” although I don’t think that point is necessarily fixed. We can shift our point toward more happiness and satisfaction by working on our internal beliefs and thought patterns, and by working purposefully on increasing our level of optimism. Optimism can be learned (speaking as someone who’s learned it himself). A good book on that subject: Learned Optimism by Martin Seligman.
Thanks for the comment. I think it’s helpful to think about happiness in three parts: set point (which is fixed), circumstances (money, family, health) and volitional (practicing gratitude, volunteering, shortening your commute, reducing hassles, allocating time to friends and fulfilling activities — all likely to increase happiness).
I think not having a reliable and sufficient source of income, and not having a growing and durable net worth can supersede and diminish your peace of mind, social relationships, and other sources of happiness
I’m surprised friends and access to nature aren’t a top determinant of happiness.
It would be interesting to see historical trends. IIRC, late 1940s was height in polls measuring subjective happiness.
That was after 15 years of misery – Great Depression & WW2. So if I remember poll correctly, it implies
recent past has big impact on happiness.
Also interesting would be nation rankings. I believe Finland is near top, with US around 18(???).
That implies there are political solutions to foster happiness.
You might be interested in the General Social Survey:
https://gssdataexplorer.norc.org/trends
Click through to “life satisfaction.” As you’ll see, U.S. happiness took a huge hit during the pandemic — presumably in large part because of the resulting social isolation.
Jonathan, thanks as always for connecting finances to the bigger picture of what makes for a happy life. No matter the happiness set point of a person, I see that it is possible to be happy for no particular reason. Happiness hinges on how much you are willing to let go of: what you think is good, what’s bad, how you think the world should be or your spouse should be. It comes with the increasing realization that the game is completely played between your ears. It has nothing to do with anything else. Once you’re not caught in rearranging things to make you feel whole, you breathe easier and live your life with minimal struggle. That said, I do believe this doesn’t apply to people who don’t have enough food for the table, but that’s probably not true for most of us.
Also, yesterday I liked what I heard from a lady in a 2023 “Retiremeet” video ( on utoob – about the last 20 mins of the 6 hour video).
She said that to “feel good” in retirement, if not before, we need:
Something to do
Something to look forward to
Something to believe in
Someone to love
Something to laugh about
Doesn’t that pretty much sum it up?
Yes, the happiness “set-point” is huge. From my reading over the years, this is largely formed during childhood and to a surprising extent even in utero. Lots of negative stress (there is positive stress, but not to get into the semantic weeds) during early life has life-long consequences that can only be partially overcome later.
But the way to do the best you can no matter the quality of your early experience is, yes, with friends, family, healthy living, personal integrity, and enough moola to pay the bills and have a little fun!
Hi Robert Nothing, Nobody has ever made me feel ‘down.’ That’s always come from me, and my thoughts.
Think Happy, BE happy!
Money can provide happiness if you use it to benefit others, whether it’s your kids, other family members or strangers. Money can be used to share experiences with loved ones, in which the happy feelings or memories last longer than material gifts. For me, the happiness comes from these things as well as the peace of mind that comes from not worrying about not having enough money. As the saying goes, “I’ve been poor and I’ve been rich. Rich is better!”
In addition to the happiness setpoint that we all seem to have, I believe there have also been some studies around the type of people that one associates with and how that affects happiness. In other words, having positive, happy friends will rub off on you, but having negative, unhappy friends will do the same.
Also, I believe there has been some work around comparisons to those around you. In other words, always seeing your neighbors have more than you will make you feel envious while seeing you have more than your neighbors might make you more grateful. The effects of social media (always seeing people at their best, on trips, getting new “toys”, etc.) is largely negative on people’s mood as well, I think.
Having read both authors/studies and having gone from a 6 figure to a 5 figure income its clear that the things that can be counted don’t count for as much as the things that can’t be.
On January 31, 2023 Dr. Bill Yount penned his first article on Humble Dollar regarding financial independence and we subsequently had an enjoyable lunch together as we both live in the same city. During lunch Bill Yount recommend a book Taking Stock by Dr. Jordan Grumet which I bought and I am in the process of reading. Dr. Grumet is currently a hospice doctor who changed his practice to end of life caring for people and shares his experiences with those he cared for and their end of life regrets. Dr. Grumet changed his medical practice to allow him a more fulfilling purpose than his previous practice.
I expect I will reread this book. It has helped me revisit my thinking that Jonathan recommends to be thoughtful about how we lead our lives with an eye to boosting happiness. I would add – and reducing regrets.
Though I don’t know how happiness is measured, I do feel a bit more carefree at my life stage; there is financial stability, the kids are doing well and thus far our health is holding up.
When we reach a certain age where we’ve been there, done that, things bother us less and we know not to be hasty with our judgements – a job loss today could mean a better job tomorrow. I suppose a certain amount of wisdom leads to more contented and emotionally steady folks.
The idea of a happiness set-point is interesting. As many downs we have in a day, there are as many ups so these emotional movements are fleeting. I would presume the set-point to be the straight line drawn through curves in a chart.
Here is the thought experiment i would have: I died, arrived in heaven and felt just amazing. God says, look, it is too early, you need to go back. As horrible as life may seem, it is temporary and you need to live your life out. Don’t worry, you’ll definitely be back.
I feel I’d be back and live out this short life with more generosity, love and peace of mind. Like i said this is just a thought experiment, but the point here i think is the knowledge of something better later, brings happiness today.
Intriguing article Jonathan, and Kahneman is among my favorite authors. I think its fascinating to try to understand happiness; who is happy, who isn’t, and why. In terms of financial wealth, each of us must define “enough” for ourselves. If you have enough, you may focus your time and energy on those things which are the most important to you. That’s my recipe.
I do wonder whether the results are skewed by those for whom enough is never enough. “Oh, I have one million, I really need two. Oh, I have two million, I really need five”, etc. Replace million by billion and I suspect the situation is even worse.
Hi Jon,
Maybe the goal isn’t achieving illusory “happiness,” but rather “contentment”. Seems to me that it’s a contented nature that we could foster in our children, rather than the goal of “success”. Contentment and the luck of our family’s good health seems ideal.
Zie Gesunt Jon
Is there a connection between net worth and happiness?
Most of the studies I’ve seen are based on income, presumably because the data are easier to get. But I imagine that wealth and happiness are similarly correlated.
From personal experience, no. As happy now as I was 20 years ago while starting out.
As someone who recently spent a year living with chronic pain I would rate health most important, but unfortunately in the US you often need wealth to obtain or maintain health (see, for example, the recent problems with insulin, or reports on food deserts.) That suggests that one’s answers to this type of question may depend heavily on one’s life experiences. Ten years ago I might not have rated health so highly, being more inclined to take it for granted.
I’ve endured heartbreak, and other difficult times. I’ve enjoyed many pleasures as well. All in all, I’ve usually been moderately happy. That’s my baseline, I quickly return to it after something good or bad briefly changes it.
Some folks are prewired to be miserable; others are happy by nature.
Jonathan, thanks for an intriguing and insightful article. I’m intrigued by the concept of a “happiness set point”. I wonder if being aware of our personal set point gives us an opportunity to “improve” it. Thanks for the references; I look forward to exploring. Best, Rick
i read an article about happiness some time ago I wish I had saved. It boiled down happiness to 3 components. The first was having meaningful work that gave purpose to our lives. The second was simply having something to look forward to. And the third was having someone to love. Somehow money was never mentioned.
Thanks Jonathan for your always insightful and thought provoking article.
Very succinct summary!
Richard Easterlin may be considered the father of happiness economics, but I nominate Jonathan Clements as the father of explaining the research on happiness economics to the masses. Thank you, Jonathan.
Some of the happiest times of my life have been periods of relative uncertainty when income was low or finances were tight, combined with the thrill of implementing a new business idea or starting and growing a small business. Those personal experiences lead me to believe that happiness is more often found in the journey, than arrival at the destination.
May be a trite remark, but people are happy or not. Some people with every toy imaginable can be miserable to be around while some people with no toys can make everyone around them happy. Good health and a propensity to be happy, “positive thinking”, seem to be most important. That’s been my experience over many years.
Great food for thought 😊