Does money buy happiness?
It’s a questions that psychologists, economists, philosophers, and Meridian advisors alike have sought to answer. Over the past few years, studies have found that in general, yes, money does buy happiness. But the real answer is more nuanced than that.
Source: https://knowledge.wharton.upenn.edu/article/does-money-buy-happiness-heres-what-the-research-says/
Revisiting the $75,000 Happiness Plateau
In 2010, Daniel Kahneman and his Princeton colleague, Angus Deaton, published a widely-cited study suggesting that emotional well-being increases with income, but only up to an annual income of around $75,000 ($108,500 in today’s dollars). Beyond that threshold, additional income does not have a significant correlation to increased happiness. This concept of a “happiness plateau” remained the prominent theory for more than a decade.
Killingsworth Changes the Narrative
In 2021, University of Pennsylvania professor Matthew Killingsworth published a new study challenging Kahneman and Deaton’s long standing conclusions. By leveraging smartphones for real-time data, Killingsworth collected over 1.7 million reports from about 34,000 participants scoring their happiness levels during daily activities.
Killingsworth concluded that larger incomes “were robustly associated” with both greater happiness and greater life satisfaction. His study provides evidence that experienced well-being continues to rise with income, with no plateau at $75,000.
Better Together
Kahneman and Killingsworth are both well respected authors and researchers in their fields, so how could they come to such contradictory results? In 2023, they collaborated (along with Professor Barbara Mellers of the University of Pennsylvania), to publish a new research paper that reconciled the conflicting findings of the two studies, concluding that neither was entirely accurate.
In Kahneman’s study, the measures of happiness were too broad, with no gradient to indicate an increase in happiness – it was happy or not happy. This resulted in participants in lower income brackets reporting the same level of happiness as those making more. Killingsworth failed to note that for about 20% of his study’s participants, happiness did not increase significantly once they hit about $100,000 in income.
Together, Kahneman, Killingsworth, and Mellers re-examined the data and found that money is associated with happiness for most, but not all. For about 85% of the population, happiness continues to improve well past $75,000 per year in income. For the unhappy minority (i.e., the least happy 15% of the sample), higher incomes boosted mood significantly but only up to about $100k per year, after which it plateaus – see navy line.
Source: https://www.fathom-consulting.com/money-buys-happiness-case-closed/
So, Does Money Buy Happiness?
The results of the two most recent studies suggest that yes, money does buy happiness. Here at Meridian, we have found that the happiness that comes from money is much more than having the funds to buy nice things. Money alone is no guarantee of happiness, but it can provide freedom to choose and peace of mind.
The financial freedom is being able to live the life you want to live. It can allow one to choose to pursue a different career, switch to part time work, or maybe retire early. It gives one the freedom to invest in hobbies, support organizations, or travel the world.
Money also allows you to buy your own time – consider a task like mowing your lawn. If you are financially free to do so, you can choose to hire someone else to mow your lawn, or spend your time doing it because you enjoy it. There is no right or wrong answer there, but it is a wonderful feeling to know you have the choice.
Peace of mind is knowing that you have the financial security to weather an emergency situation, volatile markets, or a disruption in everyday life. It is knowing that you have control of your life and you are not governed shortfalls in money or money needs. Reduced stress can certainly help make someone feel happier.
Meridian can’t buy happiness for our clients, but we can help create the space and time for personal fulfillment, relationships, and emotional well-being.
If money is the key to happiness for humans, snow is the key to happiness for Joy!