Does money make you happy? And if so, how much of it? Psychologists and economists, including even a Nobel Prize winner, have looked for answers to this question – and found them. We Are/Getty
“You work and then you’re unhappy and then you buy something and then you’re a bit happy for a moment and then you go back to work”
What the Twitter sage Sebastian Hotz writes is true, somehow: money alone does not make you happy, everyone agrees. However, it is also not possible to do it completely without money – as is the general consensus. And even that money and happiness are somehow connected, hardly anyone really wants to deny. Just how and where the perfect harmony of both lies and when you have enough of everything, that seems unclear.
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State of research 2010: Money only makes you happy up to 75,000 dollars a year
It’s a good thing that researchers, renowned researchers, even Nobel Prize winners, have taken on this question. In September 2010, Daniel Kahnemann, Nobel laureate in economics, and Angus Deaton, economist, both from the Center for Health and Well-being at Princeton University in the US, published a study entitled: “High income improves life evaluation but not emotional well-being”.
The starting point was the question: Can people buy happiness? The scientists looked at “happiness” on two levels: On the one hand, there was “emotional well-being”, i.e. the interplay of joy, stress, sadness, anger or affection that people feel in everyday life. On the other hand, they examined how happy people rate their lives when they think about it, i.e. look at it more rationally than emotionally. And they found that there are differences between actual well-being and rational perception.
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Life appraisal increases linearly with income. This means that, rationally speaking, people describe their lives as happier the more money they earn. However, the emotional feeling often does not correspond to this. They don’t feel happiness increases as they earn more. Emotional wellbeing does increase with income, but only up to a point. From then on, it no longer makes any difference to the perceived happiness whether someone earns more money or not.
The two scientists were able to define this point very precisely in their study: the curve stagnated between 60,000 and 90,000 dollars annual income for thousands of people surveyed. Money, then, seemed to have diminishing marginal utility as measured by its impact on happiness. A concrete average value could be calculated from this and the study became famous worldwide with this statement: money makes people happy – up to an annual income of around 75,000 dollars.
“We conclude that high income increases life satisfaction but not happiness,” wrote Kahnemann and Deaton. Could it be that they are describing quite precisely the attitude to life of those who supposedly have everything – career, reputation, maybe even their own company, a chic apartment and money for vacation – and still feel an oppressive, dark nothingness inside?
New research 2021: More money makes happier after all
In 2021, however, another study became very famous. The psychologist Matthew Killingsworth from the University of Pennsylvania contradicted everything that Kahnemann and Deaton had thought they had found out. After all, more money makes happier – according to his research.
Under the title “Feeling of well-being increases with income, even beyond $75,000,” he presented the results of his investigation before, which was based on millions of data on the wealth and happiness of a number of Americans who had documented their daily well-being via Trackyourhappiness.org. And according to this, both life satisfaction and perceived happiness increase linearly with salary, at least up to $300,000 (the data did not provide clear statements about even more salary.)
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Latest results 2023: Happy people make money happier – it doesn’t help the unhappy
It finally appeared in March 2023 another study. And interestingly, the Nobel Prize winner Kahnemann and his challenger Killingsworth have teamed up for this: “Income and emotional well-being: a conflict settled” is the name of the work and promises something like the ultimate answer to the question: Does more money make you happier?
To this end, the scientists subjected their entire data to a re-analysis and reflected on it in a self-critical manner. They come to one conclusion: money affects the happy differently than it does the unfortunate.
There is a group of unfortunates. They make up about 15 to 20 percent of all people. These can be people who are feeling sad or heartbroken at the time of the survey, or who are mentally ill, suffering from depression or burnout, for example. For these people, money is virtually ineffective – at least above a certain amount that goes beyond the satisfaction of basic needs. However, less money has an effect on the unfortunate – it increases their unhappiness.
Likewise, at the other end of the happiness scale, there are people who are just inherently happy. Even with them, more money does not change their happiness. But the majority of people are somewhere in between, mostly happy, or at least not chronically unhappy. And it is precisely in your case that money has a measurable impact for the researchers: they associate a higher income with a feeling of more happiness.
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Why money makes you happy
So much for scientific research into whether money makes you happy. One could further ask: why does money make people happy?
One possible answer to this is: Because money makes you free. When you talk to people about what money means to them, you often hear the catchphrase “freedom”. In the first step, money makes you free from fear. A sufficient amount of money is important to meet basic needs. food, housing, clothing. But also education and everything that enables participation in social life. Money frees you from existential fears and worries.
More money also helps to shape life according to one’s own ideas. So money gives people the freedom to make decisions – not according to urgent need, but according to their desires. Money allows freedom of choice.
How spending money makes you happy
Michael I. Norton researches and teaches business administration at Harvard Business School and has long studied the connection between money and happiness. Together with the Canadian social psychologist Elizabeth Dunn, he has addressed the question: How do we best spend money, in the sense of: How does it make us happiest? “How to buy happiness” is the one Title of a resulting TED talk, they also wrote a book (“Happy Money: The Science of Happier Spending”). Norton’s core thesis: Happiness is actually for sale – but not in the way people spend most of their money.
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Option 1: Spend money on others
To prove this, Norton conducted a relatively simple experiment among college students: in the morning he gave randomly selected people $20 and told half to buy some for themselves by the evening. The others should spend the money on someone else. Participants were also asked to rate how happy they felt on a scale from one to ten. In the evening he asked the participants what they had bought. For those who had spent the money on themselves, it was mostly everyday things: coffee, make-up, lunch. Those who had spent the money on others reported rather unusual things: they had given the money to the homeless, given it to street artists, surprised a child with a gift. Again Norton asked about happiness. Lo and behold: The self-users were just as happy as they were in the morning, while those who had spent the money on others said they were one point happier on the scale.
Norton repeated the experiment several times in different places and situations, once for example in Uganda – the result was always the same: “Everywhere we have seen that there is not much use in spending money on yourself. But spending on other people seems to have an impact on how happy you are.”
Option 2: Spend money to save time
But that’s just one thing. Michael Norton and Elizabeth Dunn discovered another key insight into how money makes you happy: „Buying time promotes happiness“ is the title of another study. In it, the two explain: Especially in rich countries, people are getting poorer and poorer – in terms of time. Using data from the United States, Canada, Denmark and the Netherlands, the researchers were able to show that people who spend money on time-saving services, such as domestic help, handymen, accountants, ready meals and so on, have higher life satisfaction. Buying material things is rarely as happy as outsourcing time-consuming and often unloved tasks.
money alone does not make you happy
Finally, as all too often, context matters. Money alone doesn’t make anyone happy. Researchers have also proven this. The German economist Bernd Raffelhüschen, for example, professor of finance and director of the Research Center for Generational Contracts at the Albert Ludwigs University of Freiburg, called it “the four Gs” in his research, people need to be happy. In addition to money, this is also community, health and “genetic disposition”, personality, so to speak. They only make you really happy when they all come together. What is striking is that none of the other three Gs can be bought with money. So money doesn’t make you really happy. We already knew. But it doesn’t work without money either – no money is no solution either.
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