Image: Madison Oren, Unsplash

Money doesn’t buy happiness, goes the cliche. But does it? I think most of us could imagine how extra money would help solve a problem in our lives, or allow us to buy that thing or experience we have always wanted. Does that mean we would be happier? Read on to find out.

What makes us happy

The most compelling evidence for a cause for happiness comes from an 85-year long Harvard Study. It suggests that close connections with other people are the best determinant for happiness. The study finds that close connections require time and investment, as much as we’d like to think nothing changes if we don’t see or speak to an old friend in years, it really does. Money may enable you to spend time with those close to you, so money can affect your happiness.

While these initial findings are uncontroversial, studying money’s effect on happiness is more difficult and the findings aren’t straightforward.

Putting a number on happiness

Daniel Kahneman, the famous psychologist, and author, best known for Thinking Fast and Slow published an interesting study in 2010 which tried to get to heart of this issue. Kahneman’s study concluded that more income does make you happier, to a point.

The study found that happiness doesn’t meaningfully increase once annual income increases beyond $75,000. This isn’t a binary, (not happy below $75,000 and happy beyond $75,000), but reflects the idea that happiness is a scale, and that once you reach a certain level of income, more money won’t make you happier. It is an interesting idea.

Making this relevant to Brits, today

Respondents answered the study in 2008, and they were all based in the US, so a few adjustments need to be made for the UK. The current USD: GBP exchange rate would make £60,000 a reasonable equivalent to $75,000. Adjusted for inflation, that’s £85,000 per year. According to the ONS £85,000 annual income puts someone in the 95th percentile in the UK.

Following the logic of this initial study then, once you earn £85,000, you won’t be happier if you start earning more. It is a simplistic approach though; it doesn’t consider regional variation within the UK, US/UK differences in outlooks and values, or household versus individual income. It doesn’t mean it is without merit though. Follow up studies challenged the findings but found some key points remained.

It’s not all that simple though

A 2021 study by Michael Killingsworth challenged Kahneman’s findings. According to Killingsworth’s findings, happiness did increase with more money, even beyond the $75,000 figure identified by Kahneman. This fly in the ointment led to another study in 2023. This one was co-authored by Kahneman and Killingsworth and found that both seemingly contradictory statements were true under certain circumstances.

1) Higher earnings reduce unhappiness, but for the most unhappy, this is only true up to a certain point.

2) Happier people will continue to derive more happiness by earning more money.

So, money can solve some of life’s problems (reducing unhappiness), but it cannot alleviate the most profound. While an already happy person will likely be happier with more money, both in a day-to-day sense, and in terms of their overall wellbeing.

Where does this leave us?

There are a range of takeaways from this, and I’ve highlighted the most interesting from my perspective.

1) Getting the fundamentals right in life is vital; by this I mean building strong relationships with people you love, and finding work that you enjoy. The Harvard study that started in 1938 supports this.

2) You can’t fix being seriously unhappy by becoming rich. If you ignore your happiness and solely focus on increasing your income, you may become profoundly unhappy despite your increased income. And then you’d be unable to earn you way out of serious unhappiness.

3) Having a higher income will likely make you happier, but it builds from a solid foundation in points 2 and 3.

Essentially then we shouldn’t subjugate all aspects of our life to get richer, it could make us very unhappy. We need to foster close connections with people we care about too. If you do have the foundations in place for happiness then earning more money may, empirically, make you happier. Striving to do better may be good for you too.

Last word

I do assume there is a level of income or wealth where more money does not make you any happier. I just think that the studies don’t have sufficient respondents at the appropriate income level to effectively test and report this. Just because it hasn’t been proven empirically doesn’t mean it isn’t real. Take Santa Claus for example!

2010 Study

2021 Study

2023 Study

ONS

Harvard Happiness Study