Our collective understanding of the relationship between money and happiness has taken an about face in recent decades, as researchers increasingly uncover close ties between individuals’ earnings and their day-to-day happiness.
The old adage “money doesn’t buy happiness” in recent decades evolved into an understanding that individuals’ happiness increases with income – up to a point of roughly $75,000 annually, thanks to a wildly popular 2010 Princeton study. In 2021, new research from the Wharton School at the University of Pennsylvania that revealed there is no such plateau changed the public’s perception.
This research, led by Wharton School Senior Fellow Matthew Killingsworth, collected 1.7 million emotional snapshots throughout the days of more than 33,000 participants and found that all measured forms of well-being continued to rise with income, regardless of the dollar amount.
“There is no critical level of income that really changes that relationship,” Killingsworth says. And although happiness is correlated with other life factors, like education and marital status, he says his findings indicate the relationship between income and happiness is stronger.
However, the close connection between money and happiness may have more to do with an individuals’ desire for control rather than a desire for material possessions.
“Money provides people with a sense of autonomy and freedom to live the life they want to live,” Killingsworth says. “It’s not necessarily because they’re buying fancier cars and having nicer meals, although they may be, but a lot of what money is doing is allowing them to carry out their intentions and desires as agents in the world as opposed to being overly constrained city resources.”
Another study released this January and led by Jon M. Jachimowicz, assistant professor at Harvard Business School, further confirms the many ways money can be used as a problem-solving tool that results in more overall happiness.
In this study, 522 participants with incomes ranging from less than $10,000 to more than $150,000 tracked daily events and emotional responses for 30 days in a diary. The results showed that although there was no significant difference in the frequency of stressful events experienced by participants across income levels, money is able to reduce the intensity of the emotional response to those events.
And on the whole, researchers determined people with higher incomes report greater levels of life satisfaction.
“It’s not that rich people don’t have problems,” Jachimowicz told Harvard Business School’s Working Knowledge publication, “but having money allows you to fix problems and resolve them more quickly.”
Today, as inflation continues to eat away at Americans’ buying power, the cost of happiness may be rising as well. Most salaries in the US have not kept pace with inflation, but the principles revealed in the latest research on happiness and money can help individuals make the most of what they do have.
“It’s very easy to get the wrong message from that work,” says Elizabeth Dunn, professor at the University of British Columbia and chief science officer at Happy Money. “Money does matter for happiness, that’s never been in doubt. But it’s not the case that more money automatically yields happiness.”
Instead, she says consumers should more closely evaluate how they’re spending their money.
“When inflation climbs, it’s like you have fewer dollars in your wallet, so you have to make more careful choices in terms of what to buy,” Dunn says. “People get more happiness from buying experiences than from buying material things.”
Furthermore, Killingsworth’s research also found that the more people defined their personal success in terms of money, the less happy they were. So, he suggests individuals take a holistic approach.
“Some people might say, ‘What Matt’s study is showing is that I should make as much money as possible.’ I would say probably more money is better, but it’s one of many factors that matter,” Killingsworth says. “Even if my real dollars are declining, especially in times of inflation, one way to think about it is you can maintain a sense of control over your life in ways that aren’t as dependent on money.”