While there’s more to life than money, poor personal finances can have a dramatic effect on a person’s well-being. However, previous research suggests that income and happiness are only correlated up to a certain point. Money only solves money problems, after which its impact flatlines, these studies suggested.
But new research is shattering this long-held belief that happiness peaks at a certain income level, suggesting there may be no limit to how much joy money can buy.
Understanding the Wealth-Happiness Relationship
In 2010, Princeton University’s late Daniel Kahneman and Angus Deaton found that day-to-day happiness rose as annual income increased. But above $75,000 it leveled off and happiness plateaued. In contrast, work published in 2021 by the University of Pennsylvania’s Matthew Killingsworth found that happiness rose steadily with income well beyond $75,000, without evidence of a plateau.
Finally, in 2023, both Kahneman and Killingsworth joined hands in a fantastic example of adversarial collaboration in a study that set out to reconcile these contrasting differences. This study showed that, on average, larger incomes are associated with ever-increasing levels of happiness, although there were outliers in each income bracket.
“In the simplest terms, this suggests that for most people larger incomes are associated with greater happiness,” Killingsworth, a senior fellow at Penn’s Wharton School said in 2023 at the time of the study’s release. “The exception is people who are financially well-off but unhappy. For instance, if you’re rich and miserable, more money won’t help. For everyone else, more money was associated with higher happiness to somewhat varying degrees.”
Still, the 2023 study lacked data for people earning above $500,000. So, it was unclear whether happiness topped out at that income. What we now know is that even at 500K there isn’t a ceiling. The new research employed data from ultra-wealthy (people with a median net worth between $3M and $7.9M), in addition to income data on over 33,000 American employees earning at least $10,000 per year. The analysis revealed that multimillionaires report significantly higher happiness levels than people earning six-figure incomes.
Killingsworth’s surveys asked participants to rate their life satisfaction on a scale from 1 to 7. Results showed that people earning around $30,000 rated their happiness at about 4, while those with incomes near $500,000 rated their lives above 5. Multimillionaires, however, rated their life satisfaction closer to 6.
“Money is just one of many things that matters for happiness, and a small difference in income tends to be associated with pretty small differences in happiness,” Killingsworth told The Guardian. “But if the differences in income/wealth are very large, the differences in happiness can be, too.”
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Mo’ money, (not) mo’ problems
This research raises questions about the distinct impacts of wealth and income on happiness. Wealth may enable individuals to make significant investments in their lives and families, such as funding higher education or purchasing homes in desirable areas. However, while high income can also support these goals, it doesn’t necessarily eliminate financial stress. A survey by the Federal Reserve Bank of Philadelphia found that one-third of people earning over $150,000 worry about making ends meet, which is surprisingly a higher proportion than those earning less.
“The money-happiness curve continues rising well beyond $500,000 a year,” Killingsworth told CBS MoneyWatch. “I think a big part of what’s happening is that when people have more money, they have more control over their lives.”
These findings have significant implications for policymakers. With the U.S. median income around $75,000, many Americans fall into the lower satisfaction range. Researchers point out that increasing financial stability for lower-income individuals could yield substantial happiness gains, suggesting that economic policies should focus on reducing income inequality.
Of course, wealth isn’t the only factor in achieving happiness. Connections with friends and family, for example, often bring more joy than material wealth alone to many people. However, while money can’t buy true love or a sense of community, it would be naive to think it doesn’t play a major role in our happiness, as more recent research shows.
“It’s entirely possible to be rich and miserable or poor and happy,” Killingsworth noted. “The main reason is simply that lots of things matter for happiness besides money.”
He added, “But, all else equal, people tend to be happier the more money they have.”
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