Can Money Buy Happiness? Insights from Science and Real Life
"Money can't buy happiness." We've all heard this cliché countless times, often from well-meaning friends or relatives trying to console us after a financial setback or encourage us to focus on the "more important things in life."
And to an extent, it makes intuitive sense — we all know that the richest people aren't necessarily the happiest and that some of life's greatest joys can't be bought.
At the same time, it's hard to deny that money plays a significant role in our overall life satisfaction and well-being. Financial stress is one of the biggest sources of anxiety and relationship strain, and poverty has been linked to a host of negative physical and mental health outcomes.
And let's face it — having the resources to pursue our passions, take care of our loved ones, and create meaningful experiences sure doesn't hurt in the happiness department.
So what does the latest research actually say about the link between money and happiness? Is there a magic income number that will finally make us feel content and fulfilled? Or is the relationship more complicated than that?
The happiness plateau: How much is enough?
One of the most famous studies on the link between money and happiness was conducted by Nobel Prize-winning economists Daniel Kahneman and Angus Deaton in 2010. Analyzing data from over 450,000 Americans, they found that people's day-to-day emotional well-being (i.e. the frequency and intensity of experiences like joy, stress, sadness, anger) rises with income, but only up to a point. That point, according to their analysis, is about $75,000 per year (or about $110,000 in today’s dollars).
Beyond that "happiness plateau," additional income had no measurable effect on people's daily moods and experiences. In other words, someone making $150,000 a year isn't likely to be substantially happier on a day-to-day basis than someone making $75,000 (assuming all other factors are equal).
Interestingly, the researchers did find that higher income continued to predict higher overall life evaluation (or how satisfied people were with their lives as a whole) even beyond the $75,000 mark. But the gains were much smaller above that point.
Of course, this specific dollar figure should be taken with a grain of salt. The study is now over a decade old, and the cost of living varies widely across different regions and family situations. But the general principle — that there's a point of diminishing returns when it comes to income and happiness — has been borne out in numerous other studies.
For example, a 2018 study by Purdue University researchers found that the ideal income for life satisfaction in North America was around $105,000, beyond which happiness tended to taper off. And globally, a 2021 Gallup World Poll found that in most regions, happiness scores leveled off between $60,000 to $95,000 per year.
So what explains this "happiness plateau" effect? Researchers believe it has to do with the way our brains process gains and losses. In general, we experience diminishing returns from additional gains (like income) but feel losses (like financial setbacks) more acutely.
So while going from poverty to financial stability represents a huge gain in life satisfaction, the happiness boost from additional wealth beyond that is much more modest.
There's also the concept of the "hedonic treadmill" — the tendency for our expectations and desires to rise along with our circumstances. As we make more money, our reference point for what constitutes "enough" often shifts, leading us to chase ever-higher levels of wealth and consumption just to maintain the same level of satisfaction.
This isn't to say that income above a certain level has no impact on happiness whatsoever. Higher earners do tend to report more satisfaction with their lives overall, even if their day-to-day mood isn't much different. And of course, having a financial cushion provides a sense of security and freedom that can reduce stress and enable more choices.
But it does suggest that chasing money for its own sake, or assuming that the next raise or windfall will finally make us feel content and complete, is often a recipe for disappointment. As the old saying goes, "There are many people who have a lot more than they need to live, but barely enough to satisfy their greed."
Beyond the paycheck: Other factors that affect financial wellbeing
So if income alone isn't a reliable predictor of happiness, what other financial factors contribute to overall life satisfaction? Research points to a few key areas:
Financial security and stability. Feeling like you have enough to cover your basic needs, handle emergencies, and plan for the future is a much stronger predictor of financial well-being than raw income. Living paycheck-to-paycheck or carrying high levels of debt can create chronic stress and anxiety, even at relatively high-income levels.
A sense of control and autonomy. People who feel like they have agency over their financial lives and the freedom to make choices tend to be happier than those who feel trapped or powerless. This could mean having the flexibility to change jobs, take time off, or invest in personal growth.
Alignment with values and goals. When our spending and saving habits are in line with our priorities and aspirations, we tend to feel more fulfilled and satisfied. On the flip side, when we feel like we're compromising our values for a paycheck or status symbol, it can lead to inner conflict and resentment.
Social connection and generosity. Humans are inherently social creatures, and our financial habits can play a big role in the quality of our relationships. People who prioritize spending on shared experiences, gifts for loved ones, and charitable causes tend to be happier than those who focus solely on personal consumption.
A growth mindset. People who view their financial situation as a work in progress, with opportunities for learning and development, tend to be more satisfied than those who feel stuck or helpless. Cultivating a sense of curiosity, adaptability, and resilience in the face of financial challenges can boost overall well-being.
Of course, these factors are often easier to cultivate when you have a baseline level of financial security and resources. It's hard to feel in control of your choices when you're struggling to make ends meet, or to prioritize personal growth when you're working multiple jobs just to get by.
But the point is that income alone is not the whole story when it comes to financial happiness. Someone making $50,000 a year but with a strong sense of purpose, social connection, and financial stability may be much more content than someone making $500,000 but feeling isolated, compromised, and stressed about maintaining their lifestyle.
The science of happy spending
So if having more money isn't necessarily the key to happiness, how can we use the resources we do have in a way that maximizes our life satisfaction?
One of the most robust findings from the research on money and happiness is that spending on experiences tends to provide a bigger happiness bang for your buck than spending on material possessions.
A landmark study on this topic was conducted by Dr. Thomas Gilovich, a psychology professor at Cornell University. Over the course of two decades, Gilovich and his colleagues have shown that experiential purchases (like travel, concerts, classes, or meals out) tend to provide more enduring happiness than material purchases (like clothing, gadgets, or furniture).
There are a few key reasons for this "experience advantage":
Experiences are more socially connecting. We often share experiences with others, either directly (like going on a trip with friends) or indirectly (like telling stories about our adventures). This social bonding enhances the emotional impact and memory of the experience.
Experiences become part of our identity. Over time, our experiences shape who we are and how we see ourselves, providing a sense of meaning and personal growth. Material possessions, on the other hand, tend to become taken for granted or lose their luster quickly.
Experiences are more unique and resistant to comparison. It's easy to compare our possessions to other people's and feel a sense of status anxiety or inadequacy. But experiences are more individualized and resistant to side-by-side comparisons, making them less likely to spark envy or regret.
Anticipation and memory enhance the joy of experiences. The excitement of looking forward to an experience, and the fond memories we create from it, extend the happiness timeline beyond just the experience itself. Material possessions provide less opportunity for anticipation and nostalgia.
Of course, this doesn't mean that all material purchases are inherently unfulfilling, or that all experiences are automatically enriching. A well-considered, high-quality item that you use frequently and treasure can certainly provide lasting value.
The key is to be intentional about aligning your spending with your values and priorities, and seeking out purchases (whether experiential or material) that genuinely enhance your life and bring you closer to others. Some questions to consider when making a spending decision:
Will this purchase bring me closer to the people and activities that matter most to me?
Is this something I will look forward to and remember fondly?
Does this align with my deepest values and goals, or am I buying it for status or external validation?
Can I afford this without compromising my financial security or creating undue stress?
Is there a way to stretch this purchase to create more experiences and connections (like inviting friends over to enjoy a new backyard entertainment setup)?
By shifting your spending mindset from "what will impress others?" to "what will enrich my life?", you can start to use your money in a way that authentically enhances your happiness and well-being.
Finding your own financial happiness formula
At the end of the day, the relationship between money and happiness is complex and individualized. What brings one person joy and fulfillment might be stressful or boring to someone else. The key is to get radically honest with yourself about what truly matters to you, and to use that self-knowledge as a guide for your financial choices.
This requires tuning out a lot of external noise and pressure — from media messages telling us we need the latest gadgets or designer labels to be happy, to social media highlight reels making us feel like we're falling behind, to well-meaning friends or family members projecting their own money scripts and values onto us.
It also means being willing to experiment and adjust over time. As our circumstances and priorities shift, so too might our financial happiness formula. What felt important and satisfying at 25 might be very different from what brings us joy at 45 or 65.
Ultimately, money is just a tool — a means to an end. And like any tool, it can be used skillfully to build a life of meaning and contentment, or it can be wielded clumsily in a way that creates stress and disconnection. The choice is ours.
