Can money buy happiness? Income may boost emotional well-being more than we thought

Money does indeed buy happiness, and it increases with a bigger paycheque more than economists previously believed, a recent analysis has found.

Widely reported findings by two Nobel Prize-winning economists (new window) in 2010 cemented the idea that money could buy happiness only to a certain point — and that point was said to be about $75,000 at the time.

The [Daniel] Kahneman and [Angus] Deaton paper in 2010 found that the relationship between income and happiness, or emotional well-being, flattens out at around $75,000, said Kostadin Kushlev, a happiness researcher and assistant professor at Georgetown University's department of psychology in Washington, D.C.

Now one of those researchers says he was wrong about the $75,000 part — and not just because everything is so expensive these days.

A paper Kahneman co-authored with Matthew Killingsworth and Barbara Mellers in 2023 concluded that the 2010 research had overstated the plateau effect (new window) because it used an unreliable method of measuring happiness from a Gallup survey, which asked study subjects to recall if they smiled the previous day.

The newer conclusions are based on a more continuous measure of happiness, Kushlev told Cost of Living (new window). The researchers would ping their subjects' phones randomly during the day to ask them, How do you feel right now? — rating their mood on a scale from very bad to very good.

So when you use this measure, there seems to be a linear relationship between income and happiness that does not level off at $75,000, Kushlev said.

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The 2023 paper found that most subjects reported increased emotional well-being all the way up to $500,000 in annual income.

In an interview with NBC, Killingsworth said that's because as people earn more money, they feel more in control of their lives.

If you have more money, you can see organic raspberries in the grocery store and that's what you are in the mood for, so you buy it instead of buying a box of dry pasta, he said. Or maybe if you're working in a job that you think is kind of unfulfilling, you can quit your job and you have sort of a financial cushion.

3 pillars of happiness

Kushlev said when researchers talk about happiness, they tend to use a term called subjective well-being, which has three components.

One component is how we look at our lives overall, and that's what we call life satisfaction. And generally speaking, when we talk about income and happiness, income does relate to greater life satisfaction.

But Kushlev said what's less clear from research is how money affects the other two pillars of emotional well-being: frequent positive feelings and relatively infrequent negative feelings.

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Income might have this protective effect against experiencing certain negative emotions, but it doesn't necessarily bring us joy on a day-to-day basis, he said.

The 2023 study also found that among the least happy 15 per cent of people studied, happiness was unmovable beyond about $100,000 in annual income.

This income threshold may represent the point beyond which the miseries that remain are not alleviated by high income, the authors wrote. Heartbreak, bereavement and clinical depression may be examples of such miseries.

'Investing in relationships and people'

Peter Drummond has experienced both living in poverty and making it big as an entrepreneur.

Growing up in the United States, his family would go through real boom-and-bust cycles. As a result, they would live large at some times and sleep in the car at others.

It's hard to be happy when you're hungry.- Peter Drummond

The biggest problem with poverty is, for me anyway, was a lack of food. Being hungry sucks. It's hard to be happy when you're hungry, he said.

Drummond moved north to Vancouver when he was 17 and got a job going door-to-door selling credit card machines to businesses. That started him on a career in financial technology, including getting a percentage of the profit when one company he worked for sold for $120 million.

As a young man making roughly $300,000 a year, he said there were years when he used his money just for partying, drinking and engaging in hedonistic nihilism. He'd also do things like drop $5,000 or $10,000 at Holt Renfew on nice shoes and clothes.

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Those thrills quickly wore off, he said. But as he grew a little older and wiser, Drummond said he started to use his wealth in more meaningful ways. And then my happiness skyrocketed. So not investing in material things; investing in relationships and people.

For Drummond, that has meant helping his parents and in-laws retire, taking his parents on vacations, mentoring young people to create their own wealth and choosing work that he finds rewarding.

So now you're just significantly more constructive in the architecture of your life, he said.

Money provides freedom to choose

On the other side of the income spectrum, even a modest improvement in financial circumstances can contribute to a feeling of being more in control of your life.

Back in 2017, Jessie Golem, a photographer and videographer from Hamilton, was working four precarious jobs, including one for a volunteer organization that she hoped would open some doors.

I just didn't have any free time because I was constantly going from one job to the other to the other, she said.

It was so stressful and exhausting.... I was always thinking about, 'OK, can I pay rent?' So then any decision, even decisions about what food I could buy, was affected by this.

When Golem was enrolled in Ontario's basic income pilot program, she was able to focus on her better-paying work as a freelance photographer, knowing her rent would be covered regardless of whether her invoices had been paid promptly.

Asked if, based on her own experience, she believes money buys happiness, Golem said, Absolutely, it does.

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She said it was satisfying to see her efforts on the business turning into real-world money, and it helped that she was no longer in a constant state of worry about what she'd do if the car or computer she uses for work broke down.

Evan Hu said he didn't realize his family was living in poverty when he was growing up in the 1960s. But as a first-generation Canadian whose immigrant father was supporting family back home in China, he said there was only enough money for the very basics.

So when he landed his first entry-level engineering job in Calgary, making about $30,000 a year in 1988, he was happy as a clam.

Eventually, Hu was part of a successful startup that significantly improved his circumstances and launched his lucrative career in software engineering. I was all of a sudden in a situation where I was drawing significantly more income, like, four or five times what a basic engineer [earns].

To Hu, the bigger paycheque meant security.

My backside's covered. I don't have to worry.... We could go to a restaurant now. We can buy a new car. We can take a vacation and not, you know, slum it, right?

The financial freedom has meant that he's been able to spend the last 15 years choosing the work he finds interesting and spending a lot of time volunteering.

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Hu said he's seen a lot of people who are really driven by status, always chasing the next carrot, and that it hasn't really made them happy.

That observation fits with what happiness researcher Kostadin Kushlev said has been shown to be much more critical to health and happiness than money and material possessions: strong relationships with other people (new window).

So can money buy happiness? I would say yes, it can. But it's better to focus on other things that we know really bring you happiness — such as the people that are important in our lives.

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