The age old question: Does money buy happiness? I often hear the 2010 study by Kahneman and Deaton cited as the decisive study concluding that making anything more than $75,000 won’t make you any happier. But is that true? Hint: it’s not. In this post, we’ll go over the new research and explain what the research really has to say about wealth and wellbeing.
After publishing and presenting dozens and dozens of peer reviewed papers and abstracts (you can find the full list on my personal website), I’ve developed an astute sense of research methodology, analysis, limitations, and even the research culture. I constantly hear studies misquoted or misattributed, and so I’ve decided to start a new series that debunks common misunderstandings and misconceptions of the scientific literature. In this first installment, we’ll be starting with money and happiness.
Science Says $75,000/year is the Key to Happiness! Right?
First, let’s talk about the most commonly quoted study when it comes to money and happiness, Kahneman and Deaton’s study from 2010 titled High Income Improves Evaluation of Life but Not Emotional Well-Being. Funny enough, the title says nothing about happiness, in fact, it even states that money doesn’t improve emotional well-being, but many people claim otherwise.
The authors define two types of wellbeing: emotional well-being and life evaluation. Emotional wellbeing is the quality of a person’s everyday experience such as joy, fascination, anxiety, sadness, anger, and affection. Life evaluation refers to a person’s thoughts about his or her own life on a longer time scale.
The main conclusion of the study was that people’s life evaluations rose steadily with income. The authors interpreted the findings that more money doesn’t buy more happiness, but rather less money is associated with emotional pain. Based on their results, perhaps $75,000 is the threshold beyond which further increases in income no longer improve their ability to do what matters most to their emotional wellbeing, such as spending time with people they like, avoiding pain and disease, and enjoying leisure.
Right off the bat, there are limitations in that the study doesn’t account for drastically variable costs of living by region or city, and as this study was done close to a decade ago, we need to factor in inflation for our current understanding. Beyond that, the highest income bracket was simply defined as “greater than $125,000 per year”, net worth was not included, and the sample had a very small number of participants making in the 6 figure range. Lastly, and most importantly, this study, and the ones that follow, are all cross-sectional studies. Without going into the types of study designs, understand that cross-sectional studies can never demonstrate causation – only correlation. And in science, the findings from a cross-sectional study are not nearly as strong as a well designed prospective study.
What the Scientific Literature Says
Donnelly and colleagues published a paper titled The Amount and Source of Millionaires’ Wealth (Moderately) Predict Their Happiness. This Harvard Business School study surveyed over 4,000 millionaires on various factors, from their net worth to income, marital status, employment status, country of residence, gender, age, etc. Unlike Kahneman’s study, they looked at factors beyond income, including net worth.
Their conclusion? Two factors were most significantly correlated with improved levels of happiness: (1) a net worth of *$10 million* or greater, and (2) earning your wealth rather than inheriting it.
Wait a minute! Now I need to have a net worth of $10 million to be the happiest? Not quite. Again, taking any single study as gospel is dangerous. And again, this is correlation, not causation. Other studies, such as Boyce et al. from 2010 suggest that an individual’s relative ranking of their income compared to others is more important than their absolute wealth.
So How Much Money Do I Need to Be Happy?
If I were to blindly go off the conclusions of these studies, I would tell you to make $75,000 per year and have a net worth of $10 million, which you had to have earned rather than inherited. So… make $75k per year and have $10 million in the bank that you earned. Starting to see why this doesn’t make sense?
No single study should be treated as the singular truth. And every single study has limitations. Even the well designed ones. Aknin et al in 2009 demonstrated that people place too much emphasis on accumulating wealth. We think more money makes us happier than it actually does. We spend more time at work, grinding, putting off time with friends and loved ones because we believe moving up the ladder and making more money will make us happier in the end.
So perhaps there’s something else we aren’t considering. Could how we spend our money be more important than the actual dollar amount? Gilovich and colleagues as well as Van Boven et al. demonstrated that spending on experiences and spending on others was associated with greater happiness than spending on material goods. Dunn and colleagues demonstrated that giving to charity was also more happiness-inducing than spending on material goods.
At this point, I’d like to invite you to take a step back. There are no easy answers in life. Sure, giving to charity and spending on experiences will make you happier than buying goods, according to a study. But if you’re struggling to make ends meet and put food on the table, will you maximize your happiness by spending money on healthy groceries or on a vacation to South Africa?
Blanket statements summarizing any study are misguided and ignorant. Out of the people who tout the statistic that you don’t need more than $75,000 per year to maximize your happiness, how many do you think actually read the study? How many have a research background or can at least critically analyze the merits and limitations of a study?
The ability to think for yourself and filter incoming information is one of the most underrated skills in our current time. We want to be spoon fed all the answers. Doctors should have all the answers, Google should answer all my questions. The reality is, as humans, there’s so much that we don’t understand, and there are gaping holes in the scientific literature.
Instead of focusing on a certain number to justify your behavior or lack of behavior, create a life on your terms. Mindfully and deliberately ask yourself, “What will make me happy? What kind of life do I want to live?”
If I thought money was the answer to happiness, I wouldn’t have left one of the most competitive and lucrative fields in medicine, especially after spending years in college, medical school, and grinding my way into a plastic surgery residency. But by appreciating the scientific literature for what it is, and for what it isn’t, I determined it’s more important to me to make a lasting impact on the world and on medical education. I want my legacy to be ending medical student and resident suicide. If I make plastic surgeon money in the process, awesome. And if not, I’ll still be happier in the end.