Can money buy happiness? There’s a wealth of research to shine a light on this fascinating topic.
A 2010 study by Princeton University professors Daniel Kahneman and Angus Deaton concluded that money does make us happier – but only up to a certain point. Self-reported levels of wellbeing increased up to about $75,000 (U.S.) a year, their work showed. After that, higher incomes had no further effect on happiness. Both men were awarded the Nobel Prize in economics so their study attracted a lot of attention.
They discovered there are two kinds of happiness and money affects each kind of happiness in a different way:
- Everyday contentment – the experiences of joy, stress, sadness, anger and affection that make your life pleasant or unpleasant.
- Life assessment – the thoughts you have about your life.
While everyday contentment levels off at $75,000 – or about $100,000 in Canadian dollars – you will probably assess your life as happier the more your income grows. There is no upper limit. People who earned $160,000, for example, reported more overall satisfaction than those earning $120,000.
“Giving people more income beyond $75K is not going to do much for their daily mood… but it is going to make them feel they have a better life,” Deaton said in 2010.
In another study, business professor Michael Norton gave university students either $5 or $20. He asked them to spend it on something for themselves, or for someone else, by the end of the day. The students who gave their money away were happier than those who spent it on themselves.
He repeated that study in several different countries and came to this conclusion: Giving money to others instead of spending it on yourself provides a bigger happiness bang for the buck.
“It doesn’t take a lot of giving to get a lot of happiness,” Norton said. “The benefits of giving can be had for mere dollars a day.”
5 ways money can boost happiness
Jean Chatzky, a U.S. money writer and TV commentator, uses Norton’s research to recommend five ways to give yourself the biggest psychic boost possible:
- Favour experiences over things. Spending $100 on a theatre ticket will likely make you happier than buying a $100 pair of blue jeans.
- Buy things that align with your values. If you like to take long walks or runs by yourself, for example, you can subscribe to an audiobook service to enrich your experience.
- Keep your circle of generosity tight. When spending money on other people, confine it to your family and close friends.
- Use cash instead of credit. Being in debt is a strong predictor of being unhappy. So, save money and try to automate it when you can.
- Track the payoff from purchases. Write down how you feel when you make a big purchase, a week later and a month down the road. That helps you determine what is worth spending money on what is worth skipping.