Can Money Buy Happiness? What the Research Says

Ray Williams
9 min readAug 4, 2022

Poverty brings people long-lasting psychological repercussions. However, for those who earn more than the official poverty level, expectations regarding how much money we should or should not have as well as choices regarding how to spend our money and how to prepare for the future can all have an impact on psychological wellness. Several long-held beliefs regarding this, nevertheless, are being called into question.

Is it true that you can’t buy happiness with money?

The conventional opinion holds that it cannot, at least not if your salary already covers your essential necessities as well as a few luxuries, such as a car. However, a paper published in the Proceedings of the National Academy of Sciences argues that this is not true. Data from more than 33,000 working persons in the US who were asked to report on their own wellness at random timepoints using a smartphone app were analyzed by Matthew A. Killingsworth at the University of Pennsylvania. The examination of more than 1.7 million reports found no evidence for a “wellness plateau” above an income level of US$75,000 per year, in contrast to the conclusions of Daniel Kahneman published in the Proceedings of the National Academy of Sciences. Instead, Killingsworth discovered that happiness increased with income, and in this study, earnings ranged from $15k to nearly $480,000. He writes that even in developed nations, “this shows that higher wages may still have potential to improve people’s daily well-being.”

A $30,000 to $60,000 increase, for example, is connected with a far higher improvement in happiness than an increase of $120,000 to $150,000. It is important to note, however, that the data reveals that well-being increases by the same amount every time income is doubled.

What purchases will bring you the most happiness? The majority of research suggests that there shouldn’t be more things, although there is a caveat to this.

There is no doubt that purchasing experiences rather than material goods leads to higher well-being. For instance, a team from the University of Texas at Austin, directed by Amit Kumar but also included Killingsworth, published the results of a study in 2020 involving 2,635 US-based adults who got daily messages asking about their mood and recent purchases. The study discovered that respondents preferred to spend money on experiences over identically priced products like jewellery or clothing, such as going to a sporting event or dining out.

Although most people say they would prefer to have more money over more time, a different study, published in Social Psychological and Personality Science, found that participants who chose money reported being happier (the participants’ household income and free time were taken into account in this analysis). The research team did discover that those who are happier are more inclined to pick more time over more money. However, their analysis reveals that the effect does go both ways, with increased pleasure and a preference for time over money supporting one another. (Thousands of Americans spanning a variety of ages, economic levels, and occupations participated in this survey.)

There is evidence, however, that purchasing experiences and time actually only makes you happier than purchasing stuff if you are already comparatively well-off compared to people around you. Research has demonstrated, as previously reported in 2018, that purchasing material goods can provide less fortunate people equally as much enjoyment as more fortunate people.

How does happiness differ based on income?

People who live in areas with more comparable earnings tend to be happier, and this is true not just of high-income areas like Scandinavian nations, but even of communities where money isn’t utilized very much according to another research study by Sara Minarro and colleagues published in PLOS ONE.

Numerous studies as described by Zonghuo Yu and Fei Wang published in Frontiers of Psychology have shown that what we earn (above a basic level) has less of an impact on our well-being than how much we earn in comparison to those around us. The researchers analyzed data spanning several decades from the US and various western European nations, including the UK. They discovered that, up until a certain point, increasing wealth disparity was positively correlated with happiness, particularly in Europe. The level of happiness decreased after that.

According to the study, modest inequality is motivating because it shows people that some social mobility is feasible and gives them hope that they might also succeed. However, if income inequality rises too much, more aspirants may abandon their dreams of upward mobility in favour of hopelessness and envy of the wealthy.

For the US, “too high” was noticeably higher than for Europe. The researchers hypothesize that this may be because Americans are more optimistic about social mobility, despite the fact that social mobility is lower and income inequality is higher in the US than in western Europe.

One other thing regarding income inequality: bringing it up can, of course, be significant. Undoubtedly, research has shown that being reminded of injustice in a visible way might increase the likelihood that those who are disadvantaged will wish to take action.

The Issue of Scarcity Viewed by Economists

Scarcity, a fundamental economic idea, is frequently used by economists to represent people as having limitless economic desires but few resources with which to satiate them. This concept is frequently given as a fundamental truth about human nature. Instead, recent research published in Nature Sustainability,by Paul Bain and Renata Bongiorno indicated that only a small percentage of people genuinely have unlimited wants and that the majority would be content with a small, but sizable, sum of money.

In 33 different nations, the researchers surveyed roughly 8,000 people. They asked participants to picture their “totally ideal existence,” without worrying about whether it was really possible, so order to urge participants to concentrate on what it would mean to have all their wants satisfied.

They asked respondents to contemplate how much money they would desire in their perfect life in order to gauge their economic wants. However, money rarely comes for free, and the researchers hypothesized that people’s responses would be affected by what they believe it would take to make a lot of money — hard work, risky investments, or even crime.

In order to make it about chance, Bain and Bongiorno asked survey respondents to select a prize in a fictitious lottery. They were informed that the odds of winning each lottery were equal, thus the decision they made had more to do with how much money they wanted for their perfect lives than it did with which lottery they had the best chance of winning. Starting at US$10,000, the lottery rewards increased in value by multiples of 10. The top award of US$100 billion would have made them the richest person in the world at the time the researchers conducted the survey.

The researchers’ conclusion was simple: If people actually have limitless wants, they should always choose US$100 billion as their maximum. But only a small percentage of people in all 33 nations picked the top reward (8 percent to 39 percent in each country). The majority of respondents selected a lottery worth US$10 million or less in the majority of nations, including the UK, while in several nations (India, Russia), the majority even selected US$1 million or less.

Additionally, the researchers aimed to comprehend the distinctions between those with restricted and unrestricted wants. Numerous personal characteristics were eliminated by their analysis because responses did not differ significantly by gender, education level, or socioeconomic background. However, younger people were more likely than older people to report having boundless wants, albeit this differed by country. Age had less of an impact in nations with less developed economies.

Using a common model of the key aspects of cultural difference, the researchers also looked at cultural differences. In nations with higher levels of social acceptability of inequality (referred to as “power distance”) and greater emphasis on group life (referred to as “collectivism”), we discovered that more people selected to play the US$100 billion lottery.

For instance, Indonesia has high levels of collectivism and power distance, yet nearly 40% of the Indonesian sample selected US$100 billion. Less than 20% of lottery winners in the United Kingdom picked the maximum prize, and collectivism and power distance are quite low there.

Finally, the researchers asked participants to rate various values that were significant to them, such as having power or helping others, and to describe the most significant change they would make if they won the reward. There was some inconsistency in this. However, in terms of values, those with limitless wants were no more concerned with helping others than those with limited wants and were less likely to indicate they would use the money to help others.

The Consequences of Unlimited or Limited Wants

Assuming people have unlimited economic wants provides a rationale for policies that prioritize economic growth, such as interest-rate policies, to allow people to achieve as many wants as possible. But the never-ending pursuit of wealth and growth has increasingly damaging consequences for our world.

The fact that people do not have endless wants and that people’s levels of desire differ according to their values and cultures shows that they are susceptible to societal pressure. Advertisers already know this since they spend a lot of money trying to get us to want things we didn’t know or care about before. Even some economists have questioned the validity of calling the demands generated by marketing wants.

The results of this research give us hope that human nature is not fundamentally at odds with sustainable living. Many are paying more attention to how to improve and even reorient society to live fulfilling lives without exhausting our planet’s resources. Understanding the lives and motivations of people with limited economic wants may teach us something about how to achieve this.What about giving money away?

According to the famous Human Generosity Project, people have historically and throughout all cultures assisted one another in times of need. Numerous cultures have been the subject of anthropological investigations, and they all point to our innate generosity. Despite the fact that this study has concentrated on philanthropy within communities, we are naturally also inspired to make anonymous charitable donations. According to studies in this area, by Lalin Anik and colleagues published as a Harvard University Working Paper giving increases happiness and happy people give more, leading to a positive feedback loop with growing advantages.

The variables that affect our choices to donate to charities have been the subject of other studies. According to a 2019 article published in Nature Communications that examined millions of dollars’ worth of donations made through the GoFundMe platform, contributors dramatically increased their gifts to individuals who shared their last name. Additionally, when donors of the opposite sex were displayed on the screen, both men and women gave more.

In the same year, a study’s findings that small “moral nudges” can motivate people to give to charity significantly more. By encouraging people to consider what was the morally “correct thing” to do, real donations jumped by over 50%.

…. And holding onto it?

You truly need to save for a down payment on a home or for your retirement, but that exorbitantly priced outfit, shirt, or vacation just appeals to you so much. The majority of us have had similar emotions. Saving money for the future is considerably more difficult than spending it today. Theoretically, it should help us find solutions to bridge the chasm between our present selves and our future selves. According to a 2018 study published in the Journal of Applied Social Psychology, a questionnaire that caused participants in Portugal to reflect more on their own impending ageing actually encouraged them to spend more in retirement funds.

Other organizations have researched various doable strategies to motivate people to save. 2020 saw the publication of a study of thousands of new users of a financial technology app by a UCLA team under the direction of Hal Hershfield. They discovered that encouraging less wealthy people to save by suggesting smaller, more frequent deposits as opposed to bigger, less frequent ones. In this US study, three times as many participants in the highest income band as in the lowest signed up to make a $150 monthly contribution. The difference in participation vanished when it was stated as $5 per day instead (even though the total savings for each individual were, of course, the same).

Additionally, there is proof that some personality qualities increase your chance of financial difficulties and even bankruptcy. Unexpectedly, agreeableness is one of these qualities. TS.C. Mat and J.J. Gladstone published a paper in the Journal of Personality and Social Psychology argue that this is because people who are pleasant regard money less and are therefore more prone to mismanage their own. According to co-author Joe Gladstone, “the association was substantially stronger for lower-income individuals, who don’t have the financial resources to compensate for the negative impact of their pleasant personality.”

Final Thoughts

Reflecting on the above, does money make you happy? To what degree? Has that changed during your lifetime?



Ray Williams

Author/ Executive Coach-Helping People Live Better Lives and Serve Others