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Money and happiness: what science says

‘Money doesn’t buy happiness’ – or can it? Over the past few years, many have tried to answer this question once and for all. While the jury is still out, here’s what some have concluded.

Money doesn’t buy happiness (after a certain amount)

In 2010, two Nobel prize laureates set out on the quest to investigate the complex relationship between money and happiness. Their names were Angus Deaton, economist, and Daniel Kahneman, psychologist.

Their research focused on the impact of money on people’s emotional well-being and life satisfaction. This led to some interesting findings. Essentially, while on average people with more money felt better about their lives, emotional well-being only increased up to a certain salary. Beyond that point, life satisfaction continued to increase, but not happiness.

In other terms, having more money makes us think that our lives are better, but it doesn’t necessarily make us feel better emotionally. On the other hand, not having enough money can negatively affect our emotional well-being. So, as far as happiness is concerned, the goal is to have enough money – not too much, not too little.

Money does buy happiness (without limits)

Another study – published in 2021 by senior fellow at the University of Pennsylvania’s Wharton School, Matthew Killingsworth – openly challenged Kahneman-Deaton’s theory.

Killingsworth used a smartphone app to periodically survey a large sample of people about how they felt during the day, on a scale from ‘very bad’ to ‘very good’. By tracking reported happiness in relation to reported income, the study found that both life satisfaction and emotional well-being increased with income – and this didn’t stop at a certain annual income.  

According to Killingsworth, these results suggest that higher incomes may still have the potential to improve people’s emotional well-being. But some critics think the findings may be driven by whether people believe that money matters to them. Is the hunt for the magic number distracting us from what matters most?

It’s not about how much, but what you do with it

Money isn’t the end goal, but a means of getting you to your goals. At the end of the day, it’s what you do with your money that matters: how you spend it, save it, and think about it determines how you feel.

So, here are some ways that money can help you ‘buy’ happiness, according to science:

  • Having savings: A recent UK study revealed that the amount of money people see in their savings account affects their happiness more than their income. As researchers explained, having a buffer of money in savings accounts give us a sense of financial security, boosting our life satisfaction. On the other hand, higher incomes alone were not associated with increased financial well-being.
  • Spending on experiences: Following a 20-year study, Cornell University psychology professor Dr Thomas Gilovich found that buying trips or other experiences led to greater happiness than buying material things. As Gilovich put it, “People often think spending money on an experience is not as wise an investment as spending it on a material possession … But in reality we remember experiences long afterward, and we also enjoy the anticipation of having an experience more than the anticipation of owning a possession.”
  • Buying time: According to researchers at the University of British Columbia, students who prioritised money rather than time ended up less happy a year after graduation, compared to those who prioritised time over money. And that was regardless of their socioeconomic backgrounds.
    In another study, people were asked how they would spend a $40 windfall, between a time-saving purchase and a material thing. Only 2% said they planned to spend it on time-saving. And yet, after experiencing both options, most reported feeling happier with the time-saving purchase.
  • Spending on others: Lastly, research shows that investing time and money in others is one way to boost well-being and life satisfaction. But that doesn’t mean giving to others always increases happiness: what matters is how and why you give.

Can money buy happiness? Yes and no. Happiness is not for sale, but depending on how you build, manage and protect your wealth – money can give you options to achieve happiness and life satisfaction.

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Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any d