Can money really buy happiness?

A closer look at the old adage


July 30, 2020

(6 min read)

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Growing up, I heard a lot of the proverb, "money can't buy happiness". I remember it being used as a response to kids' material ambitions -- a counterpoint to people wishing to become CEOs and investment bankers. True happiness, it's often said, requires some other factor, whether it be passions, religion, or interpersonal relationships. 

Happiness, along with mental health in general, seems to be becoming more relevant today. Businesses are often accused of sacrificing employee well-being for profits. Friends are trying out activities like meditation, openly talking about therapy, and, for a while, Marie Kondo-ing everything in their lives. And according to the UN, Bhutan's government is using 'Gross National Happiness', instead of GDP, to inform policy decisions.

A couple days ago, I was discussing this topic with some friends. One of them brought up the concept of the Hedonic treadmill, the tendency for people to realign to stable levels of happiness, even after positive events like promotions or good deals. The treadmill is interesting, and I've definitely experienced that back-to-normalcy readjustment before (although I didn't really think much about it). But I'm hesitant to use it as a blanket explanation: like, what happens when someone living paycheck-to-paycheck wins the lottery? If their life is fundamentally transformed, would their happiness level go back to before? Curious, I decided to look more into recent research.

Measuring happiness

I will note that happiness is difficult to measure. Not only is it a loose definition, but it's also subjective, so researchers often rely on self-reports. A common self-report questionnaire is Diener's Satisfaction With Life Scale (SWLS):

In my opinion, the SWLS is useful for getting a broad overview. Self-reporting does have some variance, but give enough questionnaires and you can generally gauge if people are satisfied or not. To me, this seems to be a general trend for measurement indices: academics do not want to be too specific with definitions and questions. 

Also, life satisfaction and happiness aren't always the same thing. There are a lot of theories floating around about how to define happiness, and this is one of them. The paper below uses a different approach.

Kahneman and Deaton's research

Dr. Daniel Kahneman and Sir Angus Deaton, two economists at Princeton's Center for Health and Well-being, tackle this question in their research. They split well-being into two subcategories: "emotional well-being", roughly the aggregate of one's daily emotional state, and "life evaluation", how one generally views their life so far. With these definitions, they directly link happiness as a state of emotional well-being, while treating life satisfaction and happiness as separate but correlated metrics.

After surveying more than 450,000 people, they found that income somewhat correlates with life evaluation, but other factors are more influential. And they also discovered that emotional well-being does not correlate with income if you make more than $75,000 annually. Their conclusion? "High income buys life satisfaction but not happiness". It seems like the old adage was right after all.

Kahneman and Deaton do acknowledge that at lower income brackets, there are positive correlations, but they speculate that this is due to increasing "ability to do what matters most to their emotional well-being", which doesn't increase at higher income levels. Basically, not living paycheck to paycheck frees up valuable bandwidth to do actions that make one happier. But once you're out of that category, that extra disposable income on top doesn't really do much for net happiness.

That last point sort of reminded me of Maslow's hierarchy of needs:

While I'm not really sure if the pyramid has the exact order of needs right, or if parts of it are outdated or oversimplified, the general idea still holds. Basic needs must be tended to first, usually by earning income, which leaves less time for those happiness-increasing actions. This phenomenon could reasonably explain the results of the paper.

A caveat: prosocial spending

Kahneman and Deaton didn't really look at how people utilized their income; they were more concerned with the quantity of income. Another paper, by Dunn et al., looks more into how we spend our money, and if that affects happiness. It provides an interesting response to the conclusions made by Kahneman and Deaton. 

Essentially, what Dr. Elizabeth Dunn and fellow researchers found was that spending money on other people increases happiness more than spending money on oneself. They conducted two main studies: a "nationally representative survey study" and a "field study of windfall spending". In both, they looked at the effects of prosocial spending, or using disposable income to help other people. Prosocial spending could be something as large as million-dollar donations to humanitarian organizations, but it could also be small acts of kindness, like a 20$ gift for a friend. Prosocial spending turned out to be a much better predictor for how study participants rated happiness. Empirically, this does check out: helping others makes one feel warm and happy, and the effects last for awhile.

Since money is a prerequisite for prosocial spending, one could argue that, yes, money does buy happiness (if used in a prosocial manner). But Dunn et al. note that the real driving factor isn't the exact amount of money spent this way, but the proportion -- specifically, the proportion of discretionary income. If I make $50,000 less than someone else, but I spend 50% more on acts of gratitude, gifts, and donations, their research would say I'm more likely happier.

However, I will say that having more income makes it easier to allocate a higher proportion for prosocial spending. Even if we only consider discretionary income, traditional wisdom says to allocate a decent amount for personal investments: that online course to learn a new skill, a gym membership, or a phone to replace your current cracked screen. And there's only so much one would want, so as discretionary income increases, people are able to spend more on others (though whether they don't, out of greed, is a whole 'nother issue to look into).

To conclude, money can buy happiness if used in prosocial spending, but income itself is not correlated with happiness after basic needs are fulfilled. An interesting resolution, which isn't really captured when one says "money can't buy happiness". 

But maybe that old saying isn't meant to be taken at face value, by itself. After all, there are plenty of other maxims that encourage prosocial behavior. When considering the sum total of these sayings (at least from my observations), they seem to reach a similar conclusion to the one found by these scholars. Just maybe, the first person to say "money can't buy happiness" nested the proverb in a lot more context, which was lost in translation and distribution, like the end result of a long game of telephone.


Anthony Ding


blogging better @ the imprint team, helping robots see @ ubtech r&d, studying eecs @ uc berkeley


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