The fascinating truth behind whether money can make you happy

The question of whether money makes you happy has long been disputed. Many individuals believe that having as much money as possible is the only way to live a fulfilling life.

Meanwhile, others might argue that happiness is a more personal endeavour, achieved by pursuing whatever means most to you.

While it might seem a more esoteric debate to be had by philosophers, this topic has now been extensively studied in scientific conditions by a number of economists over the years.

Their findings are wide-ranging, and provide fascinating insight into the question. So, read on to discover the science behind whether money can make you happy.

There’s a satiation point for how far money can boost emotional wellbeing

The first place to look in answering this question is the “Easterlin Paradox”, a 1974 finding from a study by Richard Easterlin, available on the ScienceDirect website.

Easterlin looked at 30 surveys assessing individuals’ subjective sense of happiness across 19 countries. He found that, across the board, there was a positive association between happiness and income, in that subjective happiness was greater in groups with higher incomes than those in lower categories.

However, in one dataset looking at the United States since 1946, there was an identifiable satiation point where higher income was no longer accompanied by greater happiness. In other words, having more money stopped providing the boosts to individual’s sense of wellbeing.

A subsequent 2010 study by economists Daniel Kahneman and Angus Deaton substantiated the Easterlin paradox.

The resulting research, available from PNAS, is titled ‘High income improves evaluation of life but not emotional well-being’, and posits some fascinating theories.

The research draws a distinction between two key definitions: “life evaluation” and “emotional wellbeing”. While these two concepts sound similar, they are actually quite disparate.

According to Kahneman and Deaton:

• Life evaluation is the “thoughts that people have about their life when they think about it”. This is the rational responses people give when asked to make value judgements about their lives.

• Emotional wellbeing is the “emotional quality of an individual’s everyday experience”. This accounts for frequency and intensity of emotions on any given day.

Kahneman and Deaton surveyed individuals to see how life evaluation and emotional wellbeing changed depending on annual income.

Their research produced two key findings. Firstly, it showed a correlation between income and life evaluation – that is, an individual was more likely to evaluate their life positively the greater their income.

Meanwhile, emotional wellbeing also increased alongside income but, crucially, then plateaued at an annual income of around $75,000 – roughly £55,000 in 2010. Seemingly, money could contribute to someone’s everyday positive emotions, such as joy and affection, but the study found no further progress beyond that limit.

On this evidence, it would seem that while money can bring you satisfaction in where you want to be in life, it can only improve your subjective sense of happiness and wellbeing up to a limit.

Debunking the Easterlin Paradox and the $75,000 threshold

Of course, scientific studies are very much subject to debate and, in 2013, two more economists examined these claims of a satiation limit in a new study.

Betsy Stevenson and Justin Wolfers conducted a study titled ‘Subjective well-being and income: Is there any evidence of satiation?’, available from the American Economic Association website.

By looking at multiple datasets across countries of different economic levels, Stevenson and Wolfers found no evidence to substantiate the claims made by Easterlin, Kahneman, and Deaton.

More recently, Matt Killingsworth, a senior fellow of the Wharton School at the University of Pennsylvania, also published useful findings available from PNAS on the subject.

Killingsworth created an app called “Track Your Happiness” to assess thousands of individuals’ subjective sense of happiness in real time. This, according to Killingsworth, provides a more accurate picture of the relationship between income and happiness than retrospectively asking participants how they felt on a particular day, as Kahneman and Deaton did.

In doing so, Killingsworth discovered no happiness satiation point at $75,000 – rather, he found an “equally steep slope above $80,000 as below it”.

As a result, it’s possible that money can continue to contribute to your everyday sense of wellbeing.

Your money can be the means to happiness – if you have a plan

Seemingly, the water is rather murky as to whether money can buy you happiness. There’s currently no complete consensus as to whether money itself is responsible for increased wellbeing, as the available evidence is so conflicting.

One possible interpretation to draw from the available information is that, while it won’t always directly contribute to your happiness, money can be the means to achieving it if you plan how to use it.

At Rosebridge, we’ve seen the true impact of how careful financial planning can be the key to emotional wellbeing.

When you work with us, we’ll always start with your goals for the future. We build a picture of who you are and what you want to achieve in your life, using your money as the vehicle to drive you towards your targets.

We then provide personalised recommendations as to how you can use your wealth to achieve these ambitions.

Having more money may or may not contribute to your overall sense of happiness itself. But knowing that your wealth is sufficient and suitably organised for living your desired lifestyle in the future could offer you reassurance and peace of mind, ultimately contributing to your emotional wellbeing.

Get in touch

Want to find out how we can help you achieve true financial wellbeing? Speak to us at Rosebridge.

Email enquiries@rosebridgeltd.com or call 01204 300010 today.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.