Can Money Buy You Happiness?

Transcript of Podcast Episode 289

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, can money buy you happiness?

This question has perplexed people for centuries, and a recent article in The Wall Street Journal has taken a fresh look.[1] A study done back in 2010 by Daniel Kahneman, a Nobel Prize-winning economist and psychologist, indicated that $75,000 was the peak salary for happiness.[2] According to the Wall Street Journal article previously mentioned, adjusted for inflation, that figure would be approximately $110,000 today.[3]

The $75,000 figure became a popular meme at the time, but it has been questioned ever since. In fact, Kahneman, along with Matthew Killingsworth and Barbara Mellers, updated their study in 2023. The newer paper suggests that emotional well-being increases once you reach an income of $100,000 per year but comes to a plateau at around $200,000 per year.[4] In other words, there are diminishing returns once you get above $200,000. 

But there is considerable variation. There is a subset of people—about 15 percent—for whom a bigger income makes little difference.[5] The study found that for these people, making more money fails to improve their sense of well-being once they get past $100,000. The simple truth is that money matters more to some than others and is especially evident at some income levels.

Then there’s the question of how much of a difference money really makes. Having more may make you a happier person, but it might not do much if you’re in poor health or your family is in disarray. Also, most people seem to live in a fairly narrow band between happiness and unhappiness, so a small increase in income may result in a negligible increase in overall happiness.

And it’s apparently difficult to do significant scientific research on the very wealthy. The number of people is relatively small, and they generally don’t have much interest in answering survey questions.

After all, how does one go about defining happiness? Scientists can’t seem to figure that out. Psychology Today argues that genetics plays a big part, but it doesn’t paint a complete picture. Pessimists are able to change their outlook by adjusting negative thoughts and limiting their self-criticism.[6] Also, when a specific life event occurs, such as a change in job status, the feeling of happiness or sadness will be noticeable, but it tends not to last very long.[7]

Taken together, all the studies seem to agree on one thing. As The Wall Street Journal article says, “People with higher incomes tend to be happier day-to-day and overall, numerous studies of Americans have found.”[8] So maybe, money can indeed buy you happiness. Not for everyone and not all the time, but more often than many people think.

[1] Pinsker, Joe. “How Much Happiness Can Your Salary Buy? Researchers Can’t Agree.” Wall Street Journal. https://www.wsj.com/personal-finance/income-salary-brackets-happiness-1eb80a76?mod=djem10point (accessed June 7, 2024).

[2] Suliman, Adela. ”Can money buy happiness? Scientists say it can.” Washington Post. https://www.washingtonpost.com/business/2023/03/08/money-wealth-happiness-study/  (accessed June 10, 2024).

[3] Pinsker, Joe. “How Much Happiness Can Your Salary Buy? Researchers Can’t Agree.” Wall Street Journal. https://www.wsj.com/personal-finance/income-salary-brackets-happiness-1eb80a76?mod=djem10point (accessed June 7, 2024).

[4] Bennedsen, Mikkel. “Income and emotional well-being: Evidence for well-being plateauing around $200,000 per year.” arxiv.org. https://arxiv.org/html/2401.05347v1 (accessed June 10, 2024).

[5] Picchi, Aimee. “One study said happiness peaked at $75,000 in income. Now, economists say it’s higher — by a lot.”CBS News. https://www.cbsnews.com/news/money-happiness-study-daniel-kahneman-500000-versus-75000/ (accessed June 11, 2024).

[6] Psychology Today. “The Science of Happiness.” Psychology Today. https://www.psychologytoday.com/us/basics/happiness/the-science-happiness (accessed June 11, 2024).

[7] Psychology Today. “The Science of Happiness.” Psychology Today. https://www.psychologytoday.com/us/basics/happiness/the-science-happiness (accessed June 11, 2024).

[8] Pinsker, Joe. “How Much Happiness Can Your Salary Buy? Researchers Can’t Agree.” Wall Street Journal. https://www.wsj.com/personal-finance/income-salary-brackets-happiness-1eb80a76?mod=djem10point (accessed June 7, 2024).

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