Many commonly held beliefs lack a basis in fact, such as the myths that the Great Wall of China is visible from space, lemmings commit mass suicide, most heat escapes from our heads, and we only use 10% of our brains. Another similar misconception is that making more money increases happiness only up to $75,000 annually. Recent research contradicts this, indicating that higher incomes correlate with increased happiness beyond this threshold for most people.

The $75,000 Study

The idea that wealth does not increase happiness beyond $75,000 is comforting to many. This belief stems from a 2010 study by Daniel Kahneman and Angus Deaton of Princeton University, both Nobel laureates in Economics. They concluded that happiness only rises with income up to $75,000, after which additional income has no significant impact on overall happiness.

Their study, which analyzed data from 450,000 Americans, distinguished between “emotional well-being” (how we feel in the moment) and “life satisfaction” (overall life contentment). They found that while happiness increases with income, it plateaus around $75,000 (equivalent to $108,000 today). The authors theorized that meeting basic needs becomes easier with more income, alleviating stress and improving health, leisure time, and emotional well-being. Beyond this point, they suggested, money doesn’t significantly impact happiness, which then depends more on relationships, health, and leisure time.

Interestingly, the study also found that life satisfaction increases continuously with income, likely because higher earnings are associated with career success and a sense of achievement.

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The Killingsworth Study

In 2021, University of Pennsylvania professor Matthew Killingsworth published a paper challenging the $75,000 threshold. Using a method called real-time experience sampling, he gathered data from 34,000 volunteers who reported their feelings and emotions several times a day through their smartphones, along with their income and life satisfaction.

Analyzing over 1.7 million data points, Killingsworth found that both happiness and life satisfaction increase with income, without any plateau. As income rose, positive emotions increased, and negative ones decreased.

The Collaborative Paper

Given the conflicting findings, Kahneman, Killingsworth, and Barbara Mellers of the University of Pennsylvania collaborated in 2023 to reconcile the differences. They found that both studies had limitations: the $75,000 study’s happiness measurement was too simplistic, and Killingsworth’s study overlooked that the happiness of the least happy 20% of people did not improve beyond $100,000 of income.

The collaborative paper concluded that for 80% of people, happiness continues to rise with income past $75,000. However, for the least happy 20%, happiness increases with income up to $100,000, after which it plateaus.

Why Money Increases Happiness

There are several reasons why more money can lead to increased happiness:

Avoiding financial stress: More money helps avoid the stresses associated with financial insecurity, such as poor health, limited leisure time, and emotional pain.

Evolutionary drive for abundance: Humans evolved in scarcity, so having more money makes us feel secure and reduces stress.

Increased choices and control: More money provides more freedom and control over our lives, which are crucial for happiness.

Strategic use of money: Spending money on experiences, helping others, building relationships, and buying time can enhance psychological well-being.

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Cautions

While more money can be linked to greater happiness, it’s crucial not to overemphasize its importance for several reasons:

Slight correlation: Although higher income is associated with more happiness, individual variations mean that money’s impact on happiness is limited.

Diminishing returns: As income increases, its impact on happiness diminishes. A significant raise for someone earning $50,000 has a more substantial effect than the same raise for someone earning $500,000.

Multifaceted well-being: Happiness is influenced by many factors beyond money, such as genetics, health, relationships, and life purpose.

The money-happiness paradox: Pursuing money as a primary goal can lower life satisfaction. Financial success goals can lead to decreased satisfaction in family life and friendships.

Moreover, while income correlates with happiness, it may not cause happiness. It’s possible that happier people tend to earn more money.

Conclusion

The connection between income and happiness is real but modest and conditional. While money is an important factor, it is not the sole determinant of happiness. Other factors like genetics, health, relationships, and life purpose play more significant roles in overall well-being. As the Beatles famously sang, “Money can’t buy me love,” but if used wisely, it can enhance our sense of well-being and improve our lives.

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