Can money bring you happiness?
Money and happiness are two things that seem to always go together, whether you believe they are related or not. David Geffen, producer and co-founder of Dreamworks, said that “anybody who thinks money will make you happy, hasn’t got money”. His net worth is estimated to be over 9 billion dollars. Jim Carrey has said that he thinks everybody should get rich and famous and do everything they ever dreamed of so they can see that it’s not the answer.”
And then there’s Ariana Grande, who noted in her hit single 7 Rings that “whoever said money can’t solve your problems, must not have had enough money to solve’em.”
The concept of happiness and its relation to money (or lack thereof) is something that has been studied by many people for many years. I think we can all agree that money can cause stress, anger, fear, and similar emotions at the other end of the spectrum. We’ve talked before about the anxiety that can be caused by debt. Stress and conflict related to money is one of the top causes of divorces in the US, and studies have found that more than half of Americans feel anxious about their money on a regular basis.
Personally, as someone who recently came out of living paycheck to paycheck and paid off a lot of debt, I don’t know if money can cause happiness per se, but I do know at the very least, that being able to know that you can pay rent, eat, and even dare I say live comfortably and treat yourself to a nice dinner every now and then provides you with stability and comfort. I mean, I’m not going to lie to you, if someone wanted to just hand me millions of dollars, I would be very, very happy. I guess in LA that could just mean I could only buy a modest house, but still. Again, I’d be very happy.
Now, I also know that every person’s definition of happiness is different. Maybe for some of you, cross country skiing is super fun and exciting, which makes absolutely no sense to me. It’s like you took skiing and took every single fun part out of it. Right? Or maybe your ideal vacation involves a tent, a secluded area in the woods, and a bonfire while others, like myself, would rather vacation somewhere with room service and a fireplace. Anyway, I don’t want to get too meta and spend time digging deep into the meaning of happiness or we’ll be here forever, but I did want to point out before diving into the research that happiness is personal. That’s why in previous episodes, we’ve talked about deciding for yourself how you want to spend your money and what’s valuable to you, whether that’s camping gear or a massage.
So, getting to the research. There have been many, many studies about money and happiness – or, as it’s often referred to in research, life satisfaction or emotional wellness. In 1974, economist Richard Easterlin found that higher per-capita national incomes did not result in happiness.
You may have heard about a popular paper from Princeton University in 2010, which was the work of psychologist Daniel Kahneman and economist Angus Deaton, both winners of the Nobel prize in economics. By looking at Gallup surveys, they found Americans’ life satisfaction did in fact increase in lockstep with their income. This life satisfaction was measured by asking about the feelings people experienced the previous day, and whether that was more positive or negative, such as worry, sadness, and stress. However, this emotional satisfaction would plateau after reaching a household income of what was $75,000 per year in 2010, or the equivalent of around $90,000 today. This meant that although more money did equal more happiness, or at least more emotional well-being, this did not extend beyond a household income of around $90,000 per year.
Then, a study from Purdue University in 2018 that was published in Nature Human Behavior expounded upon this study, with the authors stating that it used more precise income figures from around the world and accounted for household size in order to pinpoint the ideal income for life satisfaction in Northern America. This study, also drawing from a Gallup poll, researched the responses of over 1.7 million people asked to rate their lives from “worst possible” to “best possible” on a scale of zero to ten. They then analyzed the responses alongside reported household incomes to determine an ideal income level for every region of the world. In the Caribbean, it was $35,000. New Zealand was $125,000. The ideal income for life satisfaction in Northern America? $105,000. Earning more money than that would in fact lead to lower levels of happiness, according to this study. Their theory was that beyond this point, where you could afford basic needs, purchases, and loans, people may become driven to increase their earnings and wealth based on materialistic desires or comparing themselves to others. In addition, the increased workload required to increase income could result in less free time and less time to enjoy life. They did note that this figure, $105,000, also depends on where you live in North America. For reference, the average household income in the U.S. in 2018, at the time of the study, was close to $88,000.
Money does indeed buy happiness, whether you’re making $75,000, $105,000, or more. In fact, higher incomes were associated with both feeling better on a day-to-day basis and with overall life satisfaction!
I know money isn’t everything, and there are people who would need to work significantly harder to earn more money, and the greed cycle and consumerism and comparison that keeps you wanting more certainly doesn’t cause happiness. But you’re telling me that someone who can afford multiple homes across the country and is better able to provide things like vacations and expensive education for their loved ones is not more satisfied with life? I remember seeing that study when it came out and thinking all of those thoughts, and then feeling like a dick for thinking those thoughts. Like, money isn’t everything, and maybe truly these people get caught up in money and forget about other important things in life – like sprawling on your couch and watching true crime documentaries with your friends.
Then, after the wild year that was 2020, a new study was published at the end of January 2021 by Matthew Killingsworth. He’s a former software product manager, Harvard psychology doctoral student, and then a fellow at UPenn’s Wharton School. He had developed an app called Track Your Happiness that pings users at random intervals to ask them about their activities and feelings. For example, one of his earlier findings, published in 2010, was that wandering minds bring unhappiness. I think this is where I would hypothetically plug a meditation app like Headspace or Calm, if they want to sponsor this podcast and help me increase my mindfulness, income, and life satisfaction.
Anyway, Killingsworth then went on to use his app to measure the link between money and happiness. Is there a link between money and happiness, and, more specifically, is there a level of income where your happiness would plateau, like previous studies have stated?
The answer? Money does indeed buy happiness, whether you’re making $75,000, $105,000, or more. In fact, higher incomes were associated with both feeling better on a day-to-day basis and with overall life satisfaction!
So I guess Ariana was right. Whoever said money can’t solve your problems, just didn’t have enough money to solve’em.
To be fair, it should be noted that it’s very possible that another study will come out refuting this one in the future. In addition, like I said at the beginning of this episode, happiness can change based on what is important or valuable to you. I don’t want this episode to be the reason that we become hyper-obsessed with money and singularly focus on increasing our income. As we’ve learned, that can turn into a slippery slope down a mountain of unhappiness.
But, this podcast is about money, managing our money, and talking about money, and what I do believe is that having more conversations about money and educating ourselves about money will at the very least relieve our anxieties and make us more confident about money. Most importantly, I think the big takeaway from all this is that money cannot buy true happiness. However, having enough money to live comfortably is one of the foundations for finding whatever does bring you happiness. You won’t catch me living like Scrooge McDuck, but I don’t want to live like Tiny Tim either…
We’ll be building on our money education next week with my guest Stephanie, aka Money Muse! She is a legitimate former rocket scientist, and we’ll be talking about what the hell happened with the stock market in 2020 and how we can keep investing intelligently and without our emotions getting in the way during times of market volatility.
Until then, don’t forget to follow me on instagram and twitter at @moneywithmegumi, find more information at moneywithmegumi.com, and let me know how you feel about money and happiness. Now, let’s go make some money moves!