Does Money Buy Happiness?

Why do we work so hard to make money and hope that our kids will be wealthier than we are? Savvy Psychologist takes a brutally honest exploration of how money and happiness are (and aren’t) related. (Spoiler: there's bad news, good news, and lots of caveats.)

Jade Wu, PhD
6-minute read
Episode #347
The Quick And Dirty
  • People outside of the United States may not experience the same relationship between money and happiness. 
  • For the ultra-rich, earned wealth is associated with more happiness than inherited wealth.
  • There are different "flavors" of happiness. Richer people seem to have more self-focused positive emotions like pride and contentment, while poorer people have more other-focused positive emotions like love and compassion.
  • Money is a means to the things we value in life, not happiness itself. 

Have you ever thought to yourself, “If only I could increase my salary by 10%, I’d feel better”? How about, “I wish I had a trust fund. How happy I would be!” I don’t blame you -- I’ve had the same thoughts many times. Money is a big part of our lives, our identities, and perhaps our well-being. Sometimes, it can certainly feel like your happiness hinges on how much cash is in your bank account.

But what does psychological research say about the age-old question: Can money really buy happiness? Freddie Mercury didn’t think so in his 1984 song "Money Can’t Buy Happiness," but rapper Fabolous said in his song "Change Up" “...but it’s a damn good down payment.” So who is right?

Let’s take a brutally honest exploration of how money and happiness are (and aren’t) related. (Spoiler alert: I’ve got bad news, good news, and lots of caveats.)

Higher earners are generally happier

Over 10 years ago, a study based on Gallup Poll data on 1,000 people made a big splash in the news. It found that people with higher incomes report being happier...up to an annual income of $75,000 (equivalent to about $90,000 today). After this point, more money wasn’t related to higher emotional well-being. This seemed to show that once a persons’ basic (and some “advanced”) needs are comfortably met, more money is useless for well-being. 

But a brand new 2021 study of over one million participants found that there’s no such thing as an inflection point where more money doesn’t equal more happiness, at least not up to an annual salary of $500,000. In this study, participants’ well-being was measured more carefully. Instead of being asked to remember how well they felt in the past week, month, or year, they were asked how they felt right now in the moment. And based on this real-time assessment, very high earners were feeling great. 

Similarly, a Swedish study on lottery winners found that even after years, people who won the lottery had greater life satisfaction and mental health than similar people who didn’t win the lottery. Those unfortunately regular folk also had worse emotional pain when they faced misfortunes like divorce, illness, and being alone. It’s almost as if having a pile of money made those things less difficult to cope with for the winners.

Evaluative vs. experienced well-being

At this point, it's important to suss out what researchers actually mean by "happiness." There are two major types psychologists measure: evaluative well-being and experienced well-being. Evaluative well-being refers to your answer to, “How do you think your life is going?” It’s what you think about your life. Experienced well-being, however, is your answer to, “What emotions are you feeling from day to day, and in what proportions?” It is your actual experience of positive and negative emotions.

In both headline-making studies -- the one that found the happiness curve to flatten after $75,000 and the one that didn't -- they were focusing on experienced well-being. That means there's a disagreement in the research about whether day-to-day experiences of positive emotions really increase with higher and higher incomes, without limit. Which study is more accurate? Well, the 2021 study surveyed many more people, so it has the advantage of being more representative. However, there is a big caveat... 

Material wealth is not associated with happiness everywhere in the world

If you’re not a very high earner, you may be feeling salty right now. How unfair that the rest of us can’t even comfort ourselves with the idea that millionaires must be sad in their mansions!

But not so fast.

Yes, in the large million-person study, experienced well-being did continually increase with higher income. But this study only included people in the United States. It wouldn't be a stretch to say that our culture is quite materialistic, and income level plays a huge role in our lifestyle.

Another study of Mayan people in a poor, rural region of Yucatan, Mexico did not find the level of wealth to be related to happiness, which the participants had high levels of overall. Separately, a Gallup World Poll study of people from many countries and cultures also found that, although higher income was associated with higher life evaluation, it was non-material things that predicted experienced well-being (e.g., learning, autonomy, respect, social support). 

Earned wealth generates more happiness than inherited wealth

More good news: For those of us with really big dreams of “making it” and striking it rich through talent and hard work…know that the process of reaching your dream will earn you happiness. A study of ultra-rich millionaires (net worth of at least $8,000,000) found that those who earned their wealth got more of a happiness boost from their money than those who inherited it. So keep dreaming big and reaching for your entrepreneurial goals…as long as you’re not sacrificing your actual well-being in the pursuit.

A study of ultra-rich millionaires found that those who earned their wealth got more of a happiness boost from their money than those who inherited it.

There are different types of happiness…and wealth is better for some than others

So far, we’ve been talking about “happiness” as if it’s one big thing. But happiness actually has many different components and flavors. Think about all the positive emotions you’ve felt -- can we break them down into more specifics? How about:

  • Excitement
  • Contentment
  • Gratitude
  • Love
  • Compassion
  • Pride
  • Peace

...and that's just a short list.

It turns out that wealth may be associated with some of these flavors of “happiness,” specifically self-focused positive emotions such as pride and contentment, whereas less wealthy people have more other-focused positive emotions like love and compassion. 

In fact, in the Swedish lottery winners study, people’s feelings about their social well-being (with friends, family, neighbors, and society) were no different between lottery winners and, you know, regular Jans. 

Money is a means to the things we value, not happiness itself

One major difference between lottery winners and non-winners, it turns out, is that lottery winners have more spare time. This is the thing that really makes me envious, and I would hypothesize that this is the main reason why lottery winners are more satisfied with their life.

After all, if we had the financial security to spend time on things we enjoy and value, instead of feeling pressured to generate income all the time, why wouldn’t we be happier?

This is good news. It’s a reminder that money, in and of itself, cannot literally buy happiness. It can buy time. It can buy peace of mind. It can buy pleasurable aesthetic experiences, and the ability to be generous to your family and friends. It makes room for other things that are important in life.

In fact, the researchers in that lottery winner study used statistical approaches to benchmark how much happiness winning $100,000 brings in the short-term (less than one year) and long-term (more than five years) compared to other major life events. For better or worse, getting married and having baby each give a bigger short-term happiness boost than winning money, but in the long run, all three of these events have the same impact

What does this mean? We make of our wealth and our life what we will. Like Fabolous said, even if money can’t directly buy happiness, it’s a good foundation for the things that do bring emotional well-being (that’s a light paraphrase!). This is especially true for the vast majority of the world made up of people struggling to meet basic needs, to rise out of insecurity. And even beyond that threshold, being even richer can boost your life satisfaction and make it easier to have positive emotions. So it’s certainly worth your effort to set goals, work hard, and move towards financial health, and to help your loved ones do the same.

But getting rich is not the only way to be happy. You can still earn health, compassion, community, love, pride, connectedness, and so much more, even if you don’t have a big bank account. After all, the original definition of “wealth” referred to a person’s holistic wellness in life, which means we all have the potential to be wealthy...in body, mind, and soul.

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All content here is for informational purposes only. This content does not replace the professional judgment of your own mental health provider. Please consult a licensed mental health professional for all individual questions and issues.

About the Author

Jade Wu, PhD Savvy Psychologist

Dr. Jade Wu was the host of the Savvy Psychologist podcast between 2019 and 2021. She is a licensed clinical psychologist. She received her Ph.D. from Boston University and completed a clinical residency and fellowship at Duke University School of Medicine.