Can Money Buy Happiness? Yes, but How You Spend It Matters More

There is one sentence in my book that I would write differently today. Explaining why money and happiness are not the same, I wrote that once your existential needs are covered, more money doesn't add to your happiness. That was what most of us took from one of the best-known studies in my field. The research has since moved on, and as a happiness economist I think you deserve the updated version, not the comfortable one.

The rest of that paragraph I still stand behind. Money makes everything easier, but it is not the same as happiness; if we could buy happiness, as I joked in the book, we would probably buy a size too large. The real question is what you spend money on, and what your life pays to earn it.

In my book Courage on the Journey of Happiness, money belongs to the challenge called Do What You Love, because the way we earn and spend it shapes our days. Here is what research says now.

Are rich people happier?

On average, yes. When Daniel Kahneman and Angus Deaton analysed more than 450,000 answers to a daily Gallup survey of Americans, people with higher incomes rated their lives as better, and the line kept rising¹. A low income also made life's blows, such as divorce or being alone, hurt more. Not having enough is genuinely hard, and positive thinking doesn't change that.

Two details matter. First, what counts is the proportion, not the amount. In Matthew Killingsworth's data, going from $20,000 to $60,000 a year went with the same rise in well-being as going from $60,000 to $180,000². Second, in the World Happiness Report, national income is only one of six factors that help explain why countries differ in life satisfaction; the others include having someone to count on and freedom to make life choices³.

Does happiness stop rising at $75,000 a year?

This is the famous number behind my sentence. In the same study, Kahneman and Deaton found that everyday emotional well-being rose with income but showed no further progress beyond about $75,000 a year. The conclusion travelled the world: high income buys life satisfaction, but not happiness.

Then, in 2021, Matthew Killingsworth collected more than 1.7 million real-time reports from 33,391 working Americans through their smartphones. He found no plateau: both how people felt in the moment and how they judged their lives kept rising with income, even above $75,000.

What happened next is one of my favourite stories in happiness research. Instead of arguing in journals, Kahneman and Killingsworth teamed up, with psychologist Barbara Mellers as arbiter, in what scientists call an adversarial collaboration⁴. Both turned out to be partly right. For the least happy 20% of people, happiness rose with income up to about $100,000 a year and then barely moved; the authors name heartbreak, bereavement and clinical depression as possible examples of miseries money doesn't relieve. For most people, happiness kept rising, and for the happiest it rose even faster.

So here is my correction. Covering your basic needs is not where money stops mattering: for most people, more income goes with a little more happiness, all the way up. But notice the word little. The authors themselves call the link weak, even if robust. Median happiness at household incomes of $15,000 and $250,000 differed by about five points on a 100-point scale, and roughly four times more income had about the same effect on daily emotions as a weekend. Money matters. It just matters less than we hope, and far less than we sometimes sacrifice for it.

The hyperinflation of desires: why more never feels like enough

In my book I describe our consumer society as a hyperinflation of desires: our wishes grow faster than any salary. Two forces keep it going. The first is comparison: we judge our money against the people around us. In the book I ask whether you would rather earn $50,000 a year while others in the same job earn $25,000, or $100,000 while others earn $250,000. Prices stay the same, so the second option buys twice as much. When economists Sara Solnick and David Hemenway asked a similar question, half of their respondents preferred 50% less real income, as long as they earned more than others⁵.

The second force is adaptation. Every new level of comfort soon feels normal, the glow of a new car or phone fades, and we want the next thing. Meanwhile, the extra work behind a higher income quietly takes free time. Comparison and adaptation are among the explanations for the paradox Richard Easterlin described in 1974: as countries grew richer, average happiness did not reliably rise with them⁶. More on that in is happiness a choice.

In other words, at every new level of life standard, the period of satisfaction with material things we own is shorter.

What happiness research says about spending money well

As an economist who has spent many years studying happiness, I find this the most hopeful part, because you can change it this month. In 2008 Elizabeth Dunn, Lara Aknin and Michael Norton proposed that how people spend money may be at least as important as how much they earn. People who spent more of their income on others were happier, and participants randomly assigned to spend money on someone else were happier than those who spent it on themselves⁷. Survey data from 136 countries later showed the same link in poor and rich countries alike⁸.

Good science checks itself, so let me be honest about the size. When Aknin and her colleagues repeated the key experiments with thousands of people, giving mostly still came out ahead, but the differences were small and depended on how the study was done⁹.

Time is the second lesson. Ashley Whillans and her colleagues surveyed more than 6,000 people in four countries: those who spent money on time-saving services reported greater life satisfaction, and in a field experiment working adults felt happier after a time-saving purchase than after a material one¹⁰. Killingsworth's data add a warning. Higher earners felt more short of time, not less, and people who equated money with success were less happy at every income level. About three quarters of the link between income and how people felt went together with one thing: feeling in control of their own life.

How to spend money for happiness: six gentle steps

You don't need a bigger salary to start. You need a different question for the money you already have.

1. Name what you really want. Before a bigger purchase, ask what you hope it will give you: rest, safety, connection or admiration. Is there a more direct way to get it?
2. Buy back an hour. If you can afford it, pay for one draining task, such as cleaning or a delivery. Then protect that hour for yourself, not for more work.
3. Spend a little on someone else. A coffee for a friend, a small gift, a donation to a cause you care about. It needn't be grand.
4. Notice who you compare yourself with. Are they really more successful, in what, and from whose point of view?
5. Count the hidden price. Before saying yes to more hours or a second job, ask what it will cost in time, rest and relationships. Sometimes the raise is smaller than the life it takes.
6. Don't let money become your scorecard. Your worth isn't your income. Measure your days by how much of them feels like yours.

Is it true that money can't buy happiness?

Only half true. In my book I quote an old saying: money can buy a house, but not a home; a bed, but not a dream; a watch, but not time. I love it, and research would add one footnote: money can sometimes buy you time, if you choose to spend it that way.

So money can't buy happiness directly, but it can buy conditions that make it easier: security, choices, time with people you love, the chance to help. It can't decide what your life is for. That question stays yours, and how to be happy is a good place to keep exploring it.

Money will never tell you what your life is for, but the way you spend it shows what you believe. Learning to choose by your own values rather than by comparison is at the heart of my programme Permission for Life.