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FOR THE PAST FEW years, I’ve been on a Radiohead kick. For the uninitiated, Radiohead is an English rock band whose lead singer is Thom Yorke, known for his distinctive whining vocals—I mean that in a good way—and innovative songwriting.
As I read about Yorke, a quote from him leaped off the page: “When I was a kid, I always assumed that [fame] was going to answer something—fill a gap. And it does the absolute opposite.”
I immediately thought of the financial corollary. People assume money will make them happier or fill a void in their life. They grind and grind and grind until they finally reach retirement, or hit their financial independence number, or cross whatever threshold occupies their mind.
But does money really make us happy? Some studies say no. A famous 2006 study by five academics, including the late great Danny Kahneman, concluded, “The belief that high income is associated with good mood is widespread but mostly illusory. People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities.”
Kahneman and Angus Deaton added new findings in 2010, suggesting that emotional well-being rises with income “but there is no further progress beyond an annual income of ∼$75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.”
A 2021 study added a new wrinkle. Matthew Killingsworth, of the University of Pennsylvania’s Wharton School, found happiness kept rising with income, with no limit at $75,000. Killingsworth notes that, “It’s a compelling possibility, the idea that money stops mattering above that point, at least for how people actually feel moment to moment. But when I looked across a wide range of income levels, I found that all forms of well-being continued to rise with income. I don’t see any sort of kink in the curve, an inflection point where money stops mattering. Instead, it keeps increasing.”
But why? If fame couldn’t fill Thom Yorke’s “gap,” is money somehow different? Can Killingsworth’s research be right? I have a suspicion, and it starts with a favorite phrase from one of my mentors: “I don’t know if money buys happiness. But it certainly buys flexibility.”
It turns out that this idea is a key part of Killingsworth’s theory. Higher earners are happier, in part, because of an increased sense of control over their life, he says. “When you have more money, you have more choices about how to live your life. You can likely see this in the pandemic. People living paycheck to paycheck who lose their job might need to take the first available job to stay afloat, even if it’s one they dislike. People with a financial cushion can wait for one that’s a better fit. Across decisions big and small, having more money gives a person more choices and a greater sense of autonomy.”
More money equals more flexibility, more autonomy and more satisfaction. But we’re still left with a puzzle. Why did Kahneman’s and Killingsworth’s results disagree? Fortunately, they got together to compare notes and discuss why their conclusions were in opposition. The upshot: It seems we need to view happiness and unhappiness not as opposites, but as separate phenomena.
The happiness spectrum, for example, might show the difference between a 10-day vacation in a luxury hotel and a four-day vacation in a motel. Both are “good” additions to life. We’d probably accept either. But more money buys you the better of the two.
What about unhappiness? Money can put a roof over our heads and food in our stomachs, preventing two unhappy outcomes. But much unhappiness is untethered from money. Money can’t prevent a messy divorce or change the chemical imbalance in your brain.
The $75,000 threshold “may represent the point beyond which the miseries that remain are not alleviated by high income,” concluded the two authors. “Heartbreak, bereavement, and clinical depression may be examples of such miseries.”
Kahneman’s and Killingsworth’s joint research allows us to answer two crucial questions. Can money increase happiness? Yes, and seemingly without limit. Can money decrease unhappiness? Yes, but only to a point.
The armchair psychologist in me would guess fame works similarly in Thom Yorke’s case. While fame might have made certain highs even higher, it—like money—can’t address many of life’s lows.
Jesse Cramer is the pen and voice behind The Best Interest, a blog and podcast. After a decade in aerospace engineering, Jesse switched careers and now works with clients at a fiduciary wealth management firm in Rochester, New York. Jesse enjoys reading, racket sports, and fostering dogs with his wife. His previous article was Horse Then Cart.
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I was taught that money can buy comfort, convenience, and options. To be happy…I think gratitude, health, helping others, and personal accomplishment are at the top of the list and often don’t require money. How much effort I put into those (even a little bit) can directly improve my happiness.
I liked Jack’s comment regarding income vs. wealth (nest egg) and that ‘building the nest egg gave greater satisfaction than living the high life’. There’s a lot to be said about the security that a nest egg provides…and knowing you can buy a new car, but being content with your existing car. That feeling is freeing in many ways.
The article focuses on the relationship between income and happiness, but that leaves out a critical second factor: Nest-egg. It’s not quite the same thing as income.
I am now retired, and can report that having an ample nest-egg is the essential foundation of my happiness. Not a day goes by that I don’t count my blessings in having it, and I don’t like to think of the alternative.
When I was working, building that nest-egg was more important and gave me greater satisfaction than living the high-life. The same applies now after retirement.
The nest-egg is a bit more than ample (especially in this lovely low-cost-of-living area) – not cutting it close is part of the happiness-generator – so I could spend more. But I’m pretty darned content at the current level. Over the decades I managed to see a good deal of the world – most of those boxes are checked – and have no interest now in luxury travel for its own sake.
Finally, I probably have enough to make my survivors identifiable as the ones with smiles at the funeral 😉 – which makes me happy – but the amounts won’t be hugely life-changing.
Totally fair. It’s funny. I’m very aware of “income” and “wealth” being separate numbers, but I blend them together when it comes to “money vs. happiness” studies. Perhaps I shouldn’t! -Jesse
I think these studies focus on income because, at the aggregate level, accurate income data are more readily available than wealth data.
Jesse, insightful and well-written article. I never agreed with the “over $75,000 doesn’t increase happiness” conclusion.Your bringing the Killingsworth’s study into the conversation cleared it up for me. You nailed it!
Awesome! I’m glad you enjoyed it, Andy.
-Jesse
Another old saying, “I’ve been rich and I’ve been poor. Rich is better.” Beatrice Kaufman.
In actuality, I have never been “poor.” My life has been blessed financially.
I grew up in the US Army, in Germany, as an “Army. Brat.” It was not until I got to 10th grade, back in the US, that I found out my family wasn’t “affluent.” At least not in comparison to others at my school.
In 1966, I went to high school in NC. Kids at my school wore name brand clothing like IZOD and shoes called Bass Wejuns, (Tasseled Loafers.) Their belts and shoes were always matched, I guess my clothes were from Sears or the post PX, I don’t really remember. I do know they were washed and pressed and they fit. Kids at my school drove themselves to school in Mustangs and Firebirds and Chevy SS Chevelles. I walked the 2 miles from my home.
I never missed a meal, always seemed to have what I needed, other than a car, as a teenager. Of course, since I never had a license until after I graduated high school, the would have been unusual. As an adult, I have never been truly “broke,” although I carefully managed my finances during two short periods of unemployment during my 54 years of working. Like everyone, I probably could have saved a bit more and been a bit more financially astute, but I rarely made the same financial mistake twice.
As a husband & father, I never remember a time when anyone in my family wanted something they couldn’t have. Like most parents, I wanted my kids to have things I didn’t have…and both my kids had cars in high school. (My motto was, “A’s & B’s drove…C’s took the bus, and D’s could walk!”) Both of my children also graduated from college without student debt.
I am on board with the academics. Once I was making over $75,000, “life was good.” As my salary increased, it just improved slightly. The biggest difference occurred when I began to amass what JL Collin’s refers to as “FU Money.” The last 3-4 years that I was working, I was doing so mainly to pad my retirement accounts. I was making a great salary, maxing out my 403b, enjoying 8 weeks of PTO annually, and actually loved my work. I had achieved sufficient invested assets to stop working and enjoy a decent retirement income whenever I wanted. And when I decided I no longer wanted to put up with liberal, academic BS, and excessive DEI culture at my institution, I retired…because I could.
The ability to walk away, temporarily, like JL Collins describes in his book, “The Simple Path to Wealth,” or my ability to tender my resignation and know my retirement is secure, is a feeling difficult to put into words. It is an amazing feeling, and well worth the effort to make it a reality.
I may not be famous, nor rich…but I have “enough,” and Life is still Very Good.
Nice, thoughtful article Jesse.