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FOR THE PAST FEW years, I’ve been on a Radiohead kick. For the uninitiated, Radiohead is an English rock band whose lead singer is Thom Yorke, known for his distinctive whining vocals—I mean that in a good way—and innovative songwriting.
As I read about Yorke, a quote from him leaped off the page: “When I was a kid, I always assumed that [fame] was going to answer something—fill a gap. And it does the absolute opposite.”
I immediately thought of the financial corollary. People assume money will make them happier or fill a void in their life. They grind and grind and grind until they finally reach retirement, or hit their financial independence number, or cross whatever threshold occupies their mind.
But does money really make us happy? Some studies say no. A famous 2006 study by five academics, including the late great Danny Kahneman, concluded, “The belief that high income is associated with good mood is widespread but mostly illusory. People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities.”
Kahneman and Angus Deaton added new findings in 2010, suggesting that emotional well-being rises with income “but there is no further progress beyond an annual income of ∼$75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.”
A 2021 study added a new wrinkle. Matthew Killingsworth, of the University of Pennsylvania’s Wharton School, found happiness kept rising with income, with no limit at $75,000. Killingsworth notes that, “It’s a compelling possibility, the idea that money stops mattering above that point, at least for how people actually feel moment to moment. But when I looked across a wide range of income levels, I found that all forms of well-being continued to rise with income. I don’t see any sort of kink in the curve, an inflection point where money stops mattering. Instead, it keeps increasing.”
But why? If fame couldn’t fill Thom Yorke’s “gap,” is money somehow different? Can Killingsworth’s research be right? I have a suspicion, and it starts with a favorite phrase from one of my mentors: “I don’t know if money buys happiness. But it certainly buys flexibility.”
It turns out that this idea is a key part of Killingsworth’s theory. Higher earners are happier, in part, because of an increased sense of control over their life, he says. “When you have more money, you have more choices about how to live your life. You can likely see this in the pandemic. People living paycheck to paycheck who lose their job might need to take the first available job to stay afloat, even if it’s one they dislike. People with a financial cushion can wait for one that’s a better fit. Across decisions big and small, having more money gives a person more choices and a greater sense of autonomy.”
More money equals more flexibility, more autonomy and more satisfaction. But we’re still left with a puzzle. Why did Kahneman’s and Killingsworth’s results disagree? Fortunately, they got together to compare notes and discuss why their conclusions were in opposition. The upshot: It seems we need to view happiness and unhappiness not as opposites, but as separate phenomena.
The happiness spectrum, for example, might show the difference between a 10-day vacation in a luxury hotel and a four-day vacation in a motel. Both are “good” additions to life. We’d probably accept either. But more money buys you the better of the two.
What about unhappiness? Money can put a roof over our heads and food in our stomachs, preventing two unhappy outcomes. But much unhappiness is untethered from money. Money can’t prevent a messy divorce or change the chemical imbalance in your brain.
The $75,000 threshold “may represent the point beyond which the miseries that remain are not alleviated by high income,” concluded the two authors. “Heartbreak, bereavement, and clinical depression may be examples of such miseries.”
Kahneman’s and Killingsworth’s joint research allows us to answer two crucial questions. Can money increase happiness? Yes, and seemingly without limit. Can money decrease unhappiness? Yes, but only to a point.
The armchair psychologist in me would guess fame works similarly in Thom Yorke’s case. While fame might have made certain highs even higher, it—like money—can’t address many of life’s lows.
Jesse Cramer is the pen and voice behind The Best Interest, a blog and podcast. After a decade in aerospace engineering, Jesse switched careers and now works with clients at a fiduciary wealth management firm in Rochester, New York. Jesse enjoys reading, racket sports, and fostering dogs with his wife. His previous article was Horse Then Cart.
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I was taught that money can buy comfort, convenience, and options. To be happy…I think gratitude, health, helping others, and personal accomplishment are at the top of the list and often don’t require money. How much effort I put into those (even a little bit) can directly improve my happiness.
I liked Jack’s comment regarding income vs. wealth (nest egg) and that ‘building the nest egg gave greater satisfaction than living the high life’. There’s a lot to be said about the security that a nest egg provides…and knowing you can buy a new car, but being content with your existing car. That feeling is freeing in many ways.
The article focuses on the relationship between income and happiness, but that leaves out a critical second factor: Nest-egg. It’s not quite the same thing as income.
I am now retired, and can report that having an ample nest-egg is the essential foundation of my happiness. Not a day goes by that I don’t count my blessings in having it, and I don’t like to think of the alternative.
When I was working, building that nest-egg was more important and gave me greater satisfaction than living the high-life. The same applies now after retirement.
The nest-egg is a bit more than ample (especially in this lovely low-cost-of-living area) – not cutting it close is part of the happiness-generator – so I could spend more. But I’m pretty darned content at the current level. Over the decades I managed to see a good deal of the world – most of those boxes are checked – and have no interest now in luxury travel for its own sake.
Finally, I probably have enough to make my survivors identifiable as the ones with smiles at the funeral 😉 – which makes me happy – but the amounts won’t be hugely life-changing.
Totally fair. It’s funny. I’m very aware of “income” and “wealth” being separate numbers, but I blend them together when it comes to “money vs. happiness” studies. Perhaps I shouldn’t! -Jesse
I think these studies focus on income because, at the aggregate level, accurate income data are more readily available than wealth data.
Jesse, insightful and well-written article. I never agreed with the “over $75,000 doesn’t increase happiness” conclusion.Your bringing the Killingsworth’s study into the conversation cleared it up for me. You nailed it!
Awesome! I’m glad you enjoyed it, Andy.
-Jesse
Another old saying, “I’ve been rich and I’ve been poor. Rich is better.” Beatrice Kaufman.
In actuality, I have never been “poor.” My life has been blessed financially.
I grew up in the US Army, in Germany, as an “Army. Brat.” It was not until I got to 10th grade, back in the US, that I found out my family wasn’t “affluent.” At least not in comparison to others at my school.
In 1966, I went to high school in NC. Kids at my school wore name brand clothing like IZOD and shoes called Bass Wejuns, (Tasseled Loafers.) Their belts and shoes were always matched, I guess my clothes were from Sears or the post PX, I don’t really remember. I do know they were washed and pressed and they fit. Kids at my school drove themselves to school in Mustangs and Firebirds and Chevy SS Chevelles. I walked the 2 miles from my home.
I never missed a meal, always seemed to have what I needed, other than a car, as a teenager. Of course, since I never had a license until after I graduated high school, the would have been unusual. As an adult, I have never been truly “broke,” although I carefully managed my finances during two short periods of unemployment during my 54 years of working. Like everyone, I probably could have saved a bit more and been a bit more financially astute, but I rarely made the same financial mistake twice.
As a husband & father, I never remember a time when anyone in my family wanted something they couldn’t have. Like most parents, I wanted my kids to have things I didn’t have…and both my kids had cars in high school. (My motto was, “A’s & B’s drove…C’s took the bus, and D’s could walk!”) Both of my children also graduated from college without student debt.
I am on board with the academics. Once I was making over $75,000, “life was good.” As my salary increased, it just improved slightly. The biggest difference occurred when I began to amass what JL Collin’s refers to as “FU Money.” The last 3-4 years that I was working, I was doing so mainly to pad my retirement accounts. I was making a great salary, maxing out my 403b, enjoying 8 weeks of PTO annually, and actually loved my work. I had achieved sufficient invested assets to stop working and enjoy a decent retirement income whenever I wanted. And when I decided I no longer wanted to put up with liberal, academic BS, and excessive DEI culture at my institution, I retired…because I could.
The ability to walk away, temporarily, like JL Collins describes in his book, “The Simple Path to Wealth,” or my ability to tender my resignation and know my retirement is secure, is a feeling difficult to put into words. It is an amazing feeling, and well worth the effort to make it a reality.
I may not be famous, nor rich…but I have “enough,” and Life is still Very Good.
Nice, thoughtful article Jesse.
Thank you, Kevin! “Enough” is a challenge for many, many people. Kudos to you for finding it (or perhaps more important, recognizing it).
-Jesse
It is worth noting that Killingsworth found a positive linear relationship between log(income) and emotional well-being across the income spectrum. Thus, the author noted that “marginal dollars do matter less the more one earns, while proportional differences in income have a constant association with well-being regardless of income.”
That’s certainly correct. I think we agreed to remove that detail from this article. In fact, almost all of these studies use log(income), as follows from Kahneman’s most famous work: prospect theory.
-Jesse
Great intro (as an fan of RadioHead) to lead to the main point. Like a wannabe leprechaun, I often wonder of that pot of gold at the end of the rainbow. Thank you for the insights.
Thank you! I’m glad you appreciated it. -Jesse
I wonder whether we are talking about happiness or contentment? I think of happiness as more transitory, more a response to specific events, and contentment as an ongoing state. I can think of a lot events that might cause happiness that don’t require a lot of money, but I think it might have more effect on my general attitude.
Hmm. By your definitions, I think I’m talking about contentment.
Per my previous comment below, I think Killingsworth’s construct of emotional well-being is a measure of average mood/happiness throughout the day while his measure of overall life satisfaction is similar to contentment. As noted in the abstract of his article, Killingworth found that both constructs increased linearly with log(income) with an equally steep slope for high earners as for low earners.
You comment highlights the importance of examining how constructs in research studies were measured.
Both Kahneman and Killingsworth agreed that Killingsworth had a superior measure of happiness, namely experience sampling of emotional well-being in which subjects were asked at random times during the day to answer on their smartphones the question “How do you feel right now?” on a continuous scale with endpoints labedled “very bad” and “very good.” Subjects also provided answers to a measure of life satisfaction that had a positive correlation of .60 with emotional well-being.
This is a great point. As a possible alternative, I often refer to myself as lucky. I know it wasn’t exclusively luck, but some of the events of my life have arranged to my current state of either happiness or contentment – usually happiness. I’m currently looking out a window at a dreary, cool, and rainy day outside, but I’m listening to music (not Radiohead, but I do own several CDs) and smiling both inside and out.
Good for you, Jeff. I think you have a good perspective. Realizing your own luck is “the opposite of spoiled.” It’s a great thing.
-Jesse
“Contentment” is a very, very important concept. I have learned that relatively late in life.
Very much! Cheers Mike. -Jesse
You make an excellent and probably correct distinction. I’m a little skeptical of articles and studies which give a numerical happiness score and then rank various nations accordingly. It really begs the question what exactly is being measured. I had the privilege to go on a couple of volunteer medical trips to Kenya 10 years ago or so. Most of the patients and their family members lived in poverty, had dirt floors and cooked meals over an open fire indoors with poor ventilation. And nearly everyone was cheerful, friendly and seemed happy.
The documentary “Happy People” is pretty eye-opening on this axis, Jack. It follows a hunter who spends most of his year completely alone in the Russian taiga. Lonely, cold, hungry, etc. A recipe for misery? Nope. This hunter is peachy keen.
-Jesse
But would they be happier if there was a significant change in their living conditions? Would there be a change in their attitude if they saw how most Americans live, actually even those in poverty by our definition? I don’t know the answers, but if a person has no ability to compare there must be some effect.
Most likely. It seems to be part of our nature to take into account how we are doing relative to our peers and neighbors. The smart ones learn not to let this drive us to make unwise decisions, like keeping up with the Joneses so to speak. But it likely influences our attitude.
Correct, having the ability to compare leads to envy which then leads to unhappiness.
Agree.
Very nice article, Jesse. Interesting how many of us engineers naturally gravitate toward personal finance / investing. I haven’t made a career switch as you have, but I read so much in this area that I wonder why I don’t! Also, regarding Radiohead: what a phenomenally talented and creative band, and a rarity among bands in that they get better and better upon repeated listening. OK Computer, In Rainbows, Kid A – classics all.
Thank you much! It’s certainly a trend haha. Or, at the very least, we are somehow biased to find one another and then wired to think “Hey – a trend!”
The more I get into the weeds of financial planning, though, and balancing all the various “if –> then” scenarios and interactions of tax law, investing accounts, etc, etc, etc, the more I’m aware thay an engineer’s problem-solving training is perfect for this stuff.
Jesse
As a beer truck driver salesman in one of Toledo’s poorest and crime ridden neighborhoods I had the pleasure of knowing some of the nicest people you can imagine. Later as a tax preparer I knew financially very well off individuals that I didn’t perceive as happy at all. I can’t begin to offer reasons for this. Having lived hand to mouth at times, and now having ample income, I definitely agree that money buys flexibility.
Ain’t that funny?! I have similar lived experience (grew up in poorer rural Upstate NY, now live in affluent Rochester suburb).
On an individual basis, it’s hard to predict how money and happiness will interact.
-Jesse
What these studies seem to miss is the benefit of having wealth in addition to or along side of income. As incomes rise, for many, so does the desire for better quality “stuff” and more of it. The financing and leasing of automobiles is a good example. Wealthy folks can just pay cash. Today, a significant percentage of home purchases are for cash. Higher interest rates are no barrier for the wealthy. And, knowing that one can have whatever a reasonable person might want is empowering. You can be content driving your 15 year old car knowing that you can get another whenever you need/want to.
Totally fair. It’s funny. I’m very aware of “income” and “wealth” being separate numbers, but I blend them together when it comes to “money vs. happiness” studies. Perhaps I shouldn’t! -Jesse
Jesse, Wonderful thoughts. I was recently mulling the updated study, which found that correction of a subtle assumption in the original study led to the updated conclusions. When the low income population was removed (I think due to variability), there was a continued increase in satisfaction with more money. Although the authors concluded it was significant, it was small. Meaning, one could still be quite happy with the increased happiness around the “$75,000” income range. Still no need for more.
Cheers Jeff, thanks for reading! -Jesse
Thoughtful article, Jesse. As an experience and a subject, happiness and its relationship to money, has been pursued and written about since the dawn of history.
we can’t allow ourselves to be dismayed if the world hasn’t brought us what we want—for many of the things we are denied the universe has brought us something better. Unhappiness will come into our lives, but so will happiness.
what we choose to do with either is up to us.
No doubt money gives greater options, more satisfaction, and less stress. Happiness is the practice of living in the moment, it’s in everything we do.
Thanks Marjorie! I just saw this quote this morning:
“Happiness is like a butterfly, the more you chase it, the more it will evade you, but if you notice the other things around you, it will gently come and sit on your shoulder. -Thoreau
Seems to work well here!
-Jesse
Lovely thought Jesse. Edith Wharton agreed by stating, “if only we’d stop trying to be happy we’d have a pretty good time.”
Always a fun topic to ponder and discuss, thanks for this good piece, Jesse. Above its role in providing basic needs, I suspect money amplifies what each of us has brought on our life’s journey. For example: If you haven’t done the work to find what “enough” means for you, no amount will raise your baseline happiness. If your happiness is mostly intrinsic, and less determined by seeking status and respect from others (rare in the extreme), then its use to buy agency through flexibility/resilience, and to help those we love, seems a big part of money’s connection to happiness.
Good food for thought, David, thanks for writing in. -Jesse
I completely agree with your mentor: “I don’t know if money buys happiness. But it certainly buys flexibility.”
Great article.
He’s a wise dude! Thanks Michael. -Jesse
Great article Jesse. My experience and observations agree with yours and the academic’s conclusions.Not knowing how you will pay the bills causes tremendous stress and anxiety and impacts peoples health and sense of well-being. Being able to save, even a small amount, provides positive feedback and a sense of well-being.
Thank you, Rick! -Jesse
Worth noting that Kahneman & Deaton’s $75,000 annual income threshold (i.e. the threshold at which reported level of happiness seems to top out) was in 2010 dollars. Comparable income in the modern day, accounting for inflation 2010-2024, calculates out to roughly 107,500. The geography of where one chooses to live (and the the cost of living for that area) are also likely factors, no doubt. 107K spends a lot different in NYC than it does in Fort Wayne, Indiana.
Very true. Worth considering inflation and the “fallacy of average.”
One of my favorite financial planning truisms:
Never forget the 6-foot man who drowned crossing a stream that was 5 feet deep on average.
IIRC the paper came out in 2010 but the data were some years older so the inflation adjustment might be even higher.
Our personal geography — of where we grew up and where we now live — influences so much of our financial “game”.
Ain’t that the truth.
Good article, very interesting stuff, well done.
My uneducated view and experience agree with the conclusions. Money can reduce stress, increase comfort, and that can add to happiness.
i listen to the issues many people face and indeed money would help in many cases at a very basic level.
Few lives wouldn’t be better having more money – not talking about millions or living lavishly, just not worrying about a car repair or appliance replacement, etc.
Our health is most precious and while money can’t control that, it can make dealing with health care issues less stressful too.
There is no question IMO money can add to happiness. However, it takes more than money to be happy and unhappiness is not always created by the lack of money.
Thank you, Mr. Quinn! -Jesse
I totally agree. Stress leads to many health issues. Financial security lessens that stresser