Does money buy happiness?
The classic question: “Does money buy happiness?” Before either of us can answer, we need to define happiness.
What does happiness mean to you?
Articulate what it looks and feels like for you. For many Canadians, it’s difficult to clearly define happiness. A study from the American Psychological Association found that those who make “happiness” the primary goal often end up being less happy. Why? Because they become overly fixated on achieving happiness as an objective rather than engaging in the activities that actually contribute to their happiness. In other words, they’re too focused on being happy as a future goal that they forget to engage in activities that bring them happiness in the present moment.
How to be happy regardless of money
So, do we just forget about being happy? No, I don’t think so. Instead, look to “positive psychology.” It offers insight into what it means to live a flourishing life. It’s important we understand the “why” behind what we’re striving to achieve and the direction we are moving toward. Just saying “I want to be happy” isn’t enough. And, having a ton of money doesn’t seem to be enough either, according to research. We need to know our goals and the destination we’re navigating towards.
What is positive psychology? Why does it matter for our finances?
Positive psychology is the scientific study of the things that make life worth living. Researchers in this field have demonstrated two main ways in which people report subjective happiness: evaluative and experienced happiness.
Evaluative happiness involves rating life satisfaction overall. It can include a person reflecting back on life to rate their level of happiness on a scale from 1 to 10, or thinking about whether they are generally satisfied with their life. It is also called “emotional well-being.”
Experienced happiness involves daily experiences. It can look like a person rating their happiness levels during a specific activity or event, or describing a recent experience that made them happy.
However, combining these two components still doesn’t give us a straightforward answer to “Does money buy happiness?”
At what salary does happiness plateau?
In 2010, a classic study by Nobel Prize-winning economist Daniel Kahneman and economist Angus Deaton had the press hyper-focused on the idea that happiness doesn’t increase with household incomes that exceed $75,000 ($104,000 in 2022). (Figures referenced from the study are in U.S currency.)
While that was partially true, the findings of the study did show that life satisfaction (evaluative happiness) does improve after $75,000 in 2010, but emotional well-being does not necessarily improve with higher income. Emotional well-being, or evaluative happiness, refers to the quality of a person’s emotional experiences day to day, including feelings of happiness, sadness, stress and other emotions.
This study shows that, while life satisfaction (evaluative happiness) improves after a certain income threshold, emotional well-being does not necessarily improve with higher income. Although emotional well-being is a component of evaluative happiness, it may not be solely determined by income or material wealth.
While the Kahneman and Deaton study provided valuable insights, researchers still wonder if money can really buy happiness.
More research on happiness and income
In 2020, researcher Matthew Killingsworth authored a study called “Experienced well-being rises with income, even above $75,000 per year.” He found that “money can buy happiness”—but it’s not a simple transaction.
His research revealed that experienced and evaluative happiness exhibit a linear increase coinciding with rising income, even beyond that $80,000 mark. And it suggests that higher incomes are linked to feeling better day to day, as well as feeling more satisfied with life overall. He used smartphone technology in his research to gather over one-million real-time reports from participants on multiple occasions to investigate experienced happiness.
However, here’s an important nuance: Just having the additional income levels alone does not grant anyone a one-way ticket to happiness. Research consistently shows that it’s how we spend our money that really matters when it comes to happiness, joy and contentment.
In her book, Happy Money: The Science of Happier Spending (Simon & Schuster, 2014), psychologist and researcher Elizabeth Dunn offers valuable insights on how to spend our money to increase our happiness. She gives these five key things to consider when spending money to improve emotional well-being.
- Buy experiences, not things. Research shows that people tend to derive more happiness from experiences than from material possessions. So, investing in experiences like travel, hobbies or events can lead to greater happiness.
- Make it a treat. When we indulge in something too frequently, we tend to take it for granted and stop deriving as much pleasure from it. By making treats out of the things we enjoy, we can maintain the excitement and pleasure we get from them.
- Buy time. Time is valuable, and many people find themselves feeling stressed and overworked. By using our money to free up time, such as by hiring someone to clean our house or outsourcing some work tasks, we can reduce stress and increase happiness.
- Pay now, consume later. Delaying gratification can lead to greater enjoyment when we finally get to indulge in something. By saving up for something we really want, and then savoring the experience when we finally get to enjoy it, we can derive greater happiness from our spending.
- Invest in others. Spending money on others can contribute more to our happiness than spending it on ourselves, according to research. Whether it’s through charitable donations, gift-giving, or acts of kindness, investing in the well-being of others can lead to greater happiness and fulfillment.
It’s not just about having money, but also how we choose to use it.
Consider these guidelines when you spend money, so you can increase your overall evaluative and experiential happiness and well-being.
Does money equal happiness?
Whether money buys happiness is a complex question, but lots of evidence does suggest that increasing your income can contribute to greater well-being. It provides financial security and the ability to invest in meaningful aspects of our lives.
However, it’s important to note that simply having more money does not guarantee long-term happiness. How we spend money can bring us genuine joy, fulfillment and happiness, if done right.
If you found this article insightful, check out episode #56 of The Most Hated F-Word Podcast, “Does Money Buy Happiness” with Dr. Robert Biswas-Diener, a positive psychologist, author and instructor.
Read more A Rich Life:
- How to live a rich life
- What are money scripts? What’s yours?
- Investing Beyond the Numbers: Understanding financial flashpoints
- Emotional investing: How to make better decisions with your money
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