Money Buys Happiness, and the Data Proves It

From rap songs to novels, we Americans are led to believe that money doesn’t buy happiness. Or that if it does, the happiness is short-lived and leads to moral decay. But the data tells another story. Money buys happiness, and the data proves it.

You may remember reading that happiness doesn’t increase beyond $75,000/year in income. [source] But as is so often the case, things are more nuanced than the headlines it spawned. If you actually dig deeper, you’ll find that the paper partially supports the argument that more money makes you happier. Money does buy happiness, and the data proves it. 

The Famously Misunderstood Happiness Study

I’m a big fan of Daniel Kahneman and his studies about human happiness. (Check out this old post I wrote about my recreational research in case you are interested.)

So you can imagine how interested I was when I first read Kahneman and Deaton’s influential 2010. For an academic paper, it had a pretty interesting title: “High income improves evaluation of life but not emotional well-being.” It got a lot of mainstream press coverage. But the press didn’t do a great job explaining the most important findings of the paper. Instead of a more detailed discussion of some of the author’s core hypotheses, we got headlines like these:

The Wall Street Journal

Inc Magazine

LifeHacker

Reuters

Forbes

Not So Fast

These articles take Kahneman and Deaton’s findings and turn them into 2-minute clickbait listicles. And it was just the sort of counterintuitive finding that spreads quickly. You can easily imagine being at a dinner party and sharing the little factoid with an incredulous audience and looking smart. 

It was also a uniquely American story. We Americans have at least a public belief in the moral superiority of the poor and working class. According to movies, TV, novels, and other mainstream forms of entertainment, there are only two kinds of rich people. There are the moral degenerates (see Succession and the first season of Schitt’s Creek). Then there are the people who are too stuffy to enjoy life (every 1980s rom-com, Titanic, et al). The $75,000/year finding bolsters that folk story. 

See? You don’t need a net worth over $5M to be happy.You just need to be in the 66th income percentile! Not so bad. And best of all, you don’t have to become an economic vampire to enjoy life to the fullest. Unlike those detestable wall street financiers with their debauched lifestyles, this research proves that you can be more or less middle class and be maximally happy. 

The only problem with all of this feel-good rhetoric was that it was factually inaccurate.

What Kahneman and Deaton Actually Found

After the initial buzz died down around the research findings, insightful articles like this one from Vox came out that dug deeper to explain what, exactly, the original paper said.

Kahneman is credited with creating two ways to understand life experience: the remembering self and the experiencing self. They are very different modes of life experience. It’s important to understand them to fully grok what his 2010 paper was about. 

The Remembering Self

You experience the remembering self when you reflect about past events. You can try this out really easily: think about a really happy memory that occurred in the last year. Where were you? What happened? What was a particularly poignant part of the experience?

If you answered those questions, you briefly experienced what Kahneman calls “the remembering self.” In his 2010 paper, he uses the words “evaluation of life” for this mode of thought.

The Experiencing Self

This is very different from the experiencing self, or “emotional well-being.” To understand the difference, think about how you are feeling right now, this very instant. As I write this, I’m feeling a bit tired (it’s the end of the day), but I’m very comfortable. Our oldest cat is sleeping quietly next to me on the bed. My kids have finally fallen asleep. I feel like I got a lot done today. At this exact moment, I feel quite happy. 

This is a measure of my experiencing self or my “emotional well-being.” See the difference? It’s pretty substantial. 

The $75,000 In Perspective

Kahneman and Deaton’s paper actually says that as you make more money, your evaluation of life (reflecting self) becomes happier. But they found that there is a limit to how much moment-to-moment emotional well-being can be derived from income. 

This is a far more limited and intuitive finding. If you stub your toe, it doesn’t matter how much income you make, you probably won’t feel great.

In that moment of pain and frustration, you probably aren’t thinking to yourself “I know that I just stubbed my toe and it hurts like hell and I’m embarrassed that I did that, but hey, I make $400,000 per year!” Your thoughts are probably better characterized by a string of choice 4-letter words strung together with questionable grammar.

But if you ask someone how their life is going, income is likely to effect their answer. And that is indeed what they found. Just to drive this point home, their results don’t even say that life evaluation happiness levels off at $75,000. Their results suggest that people’s life evaluation happiness increases linearly with log income. Basically, this means that additional income becomes less and important, but it’s still an improvement.

A More Modern Perspective

More recent research strongly supports the finding that more money correlates with higher life evaluation happiness.

Results from a 2013 study find that life satisfaction rises with per-capita GDP:

The same authors found that responses to the General Social Survey also show a positive correlation between income and happiness. Here’s the question: “Taken all together, how would you say things are these days — would you say that you are very happy, pretty happy, or not too happy?” And here are the results:

A more recent article published in 2023 found similar results:

It’s Not Just Income

Up to this point, we’ve been reviewing the research about the relationship between income and happiness. If you think that maybe the happiness effect is more prominent for earnings rather than wealth, think again. After all, I don’t think I’d be very happy making $2M per year if I was spending $3M per year. High incomes on their own don’t necessarily result in a growing feeling of affluence and freedom.
Consider this chart from Visual Capitalist, which makes a good case for happiness rising as per-capita wealth increases:

I think it takes about $5M to be rich in most parts of the US. As you get closer and closer to that target, you experience more and more freedom and security. Freedom and security on their own won’t make you happy, but they make it a lot easier to achieve happiness. To be concrete, it’s hard to be happy if you’re terrified about an upcoming car payment. It’s comparatively easy to be happy if you can easily afford to buy a sports car you like. 

Money Probably Makes You Even Happier

The studies that I’ve summarized above make a pretty good case for more money and wealth leading to higher levels of happiness. But I think the effect sizes that they find are probably an underestimate for 2 big reasons.

It’s Hard to Survey Rich People

Here’s what the income distribution looked like in the US in 2015. (The graph doesn’t look much different in 2023 and I couldn’t easily find a similar graph for this year.) Note how few households there are in the upper reaches of the income distribution:

Source

Now, take a closer look at the number of samples in the richest segment of the Killingsworth and Kahneman’s study from above:

Finally, remember the way that this data was collected: online surveys. 

What these surveys purport to do is measure the effect between income, wealth, and different kinds of happiness. But the demographic of people most important to the research (the rich) are notoriously hard to survey. A person worth $5M probably won’t fill out a survey to win a $25 Starbucks gift card. And by the time you get into the $100M+ wealth range, people are likely to employ private security. For the sort of person who is spending six figures a year keeping themselves and their family off the radar, filling out a survey online with little to no guarantees of full and complete anonymity is a complete nonstarter.

So, wealthy people aren’t as likely to fill out surveys. Really wealthy people probably pointedly avoid them. That makes it hard to draw conclusions at the upper reaches of the income and wealth spectrum.

People Don’t Want to Appear Greedy

If you meet the minimum bar for being rich ($5M), you’ve probably learned to be discreet about it. And if you haven’t, I highly encourage you to start learning now!

One obvious way to be discreet about your wealth is not to tell other people (including researchers), how much happier it makes you. But I think it goes at least one layer deeper. I think wealthy people today purposefully cultivate a veneer of discomfort with their wealth to help themselves rationalize social inequality. In case you think that’s going a bit too far, I would suggest you read Rachel Sherman’s new book Uneasy Street. In the book, she makes a strong case that wealthy people today do exactly this. 

If Rachel Sherman’s research proves there are a substantial number of wealthy people that feign ambivalence about their wealth. Since it’s hard to survey rich people in the first place (see above), this social norm could be significantly understating how much wealth actually makes people happy.

What Does This Mean For You?

I think that this research makes a very convincing argument that having more money makes you happier. To be clear, having more money won’t make a depressed person ecstatic with joy. But it will, on the margin, make you more happy with the life that you are living.

I think that means two things for you:

If You Can, Make More Money 

I would never advocate that you go into a career that you hate. I would also never suggest that you marry someone for their bank account. You still have to live every moment of your life. Above subsistence levels, more money is a bit abstract. If you hate every waking hour, it doesn’t matter how much you earn. But, there are lots and lots of choices at the margin where I think it almost always makes sense to optimize for additional money. 

For instance, let’s say that you work in customer service. It pays a lot more to work in customer service for enterprise software companies than the DMV. If it doesn’t kill your soul, it makes sense to seek out a customer service role that pays better. The compounding effect of wealth will do wonders for your happiness over the long-term. 

Give Yourself Permission to Enjoy Your Wealth

The truly wealthy learned a long time ago that it’s much, much, much cheaper to pretend to be ashamed of their wealth than to actually give it up. Or heaven forbid, try to change society to be more equal. 

So instead, we get virtue signaling about being “blessed” or “privileged.” We get interviews from hand-wringing celebrities who insist they are middle class — while calling in from their yacht.

The world needs humanitarian, unselfish wealthy people. But I have trouble seeing how it benefits the world at large for wealthy people to loathe themselves. If you find the accumulation of wealth to be morally repugnant don’t accumulate wealth. But for the rest of us, there’s no harm in being honest with ourselves: money makes people happier and that’s something to aspire to.

Happy overthinking!