This piece first appeared on ClearerThinking.org on February 28, 2024, was edited on February 29, 2024, and appeared here with minor edits on March 27, 2024.

Does money buy happiness? Intuitively, the answer is yes: common sense tells us that poverty and hardship make people unhappy. We can use money to buy a lot of things that might make us happier – things like a nicer home, fancier vacations, education for our children, or just the opportunity to have more free time. On the other hand, it’s a cliche that “money can’t buy happiness.” Many admire and aspire to the lifestyles of multi-millionaire celebrities, yet rich and famous people often seem desperately unhappy. 

But what does science say about this question? The answer is relevant for all of us as individuals: how important is it for our happiness to strive to make a high salary? It’s also relevant for states: if policy-makers want citizens to be happy, should they prioritize increasing their wealth, or other things?

So, what’s right? Does money make you happier, or is happiness something money can’t buy? In this article, we tell the tale of scholars’ attempts to find out whether money makes people happier, and why they ended up disagreeing on such an apparently simple question. We think you’ll find the results surprising — particularly the recent saga of how some scientists set out to understand the link between income and happiness.

As usual, we’ll discuss the studies’ methodologies and results in detail throughout this piece. However, if you’re short of time and/or just want to know what are the key takeaways, you jump to the “key takeaways” section, at the end of this article. 

Does money increase life satisfaction?

There’s a clear, cross-cultural relationship between income and ‘life satisfaction’ (or ‘life evaluation’). This is broadly how well someone thinks their life is going, relative to what’s realistic for them. For example, in the Gallup World Poll (a large survey, run in over 160 countries), surveyors measure life satisfaction by asking participants in their native language:

“Please imagine a ladder, with steps numbered from 0 at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?”

This is known as the ‘Cantril ladder’. Participants with higher incomes tend to place themselves higher on the ladder than those with lower incomes. This is true both across countries and within countries. In poorer countries, people rate their life satisfaction as lower than in richer countries:

Source: Our World in Data

Citizens of poorer countries, where the GDP per capita is less than $5000, have low average life satisfaction (3-5 out of 10), whereas in richer countries like Switzerland, Singapore or the US, the average life satisfaction rating is higher (6 or 7 out of 10). Results are typically similar for other measures of life satisfaction, such as answers to the question “In general, how satisfied are you with your life?”

To complicate things somewhat, the relationship between income and life satisfaction is logarithmic. This means that every time you double someone’s income, their life satisfaction doesn’t double, but increases by a fixed amount (in this case, roughly 1 point on the life satisfaction scale that ranges from 1 to 10). 

Note that the chart above is a “log plot” – you’ll see that on the x-axis, income roughly doubles at every division, going from $1000 to $2000 to $5000 to $10,000. So a straight line on this plot means that every doubling of income is associated with an increase in happiness of a fixed number of points. On a regular (not logarithmic) scale, the graph instead looks like this:

Source: Our World in Data

This means that though an increased income is associated with greater life satisfaction, this is proportionate to how much a person is already making. Let’s say you start making an extra $1000 a year in income: this will impact your happiness a lot if you were originally making $2000 a year, but it won’t make a big difference if you were already making $100,000 a year. To put it another way, for those who are poor, life satisfaction will typically increase quite a bit as they make an additional $10,000, but for those who are rich, this amount of money has far less impact. .

The charts above show the relationship between income and life satisfaction across countries, but higher-income countries and lower-income countries differ in many ways other than wealth. For instance, lower income countries tend to have worse healthcare systems, so it’s hard to tell if they have lower average life satisfaction due to lower incomes or due to worse healthcare systems (or due to a myriad of other differences between wealthy countries and poorer countries). So it’s hard to be confident from this data alone that higher incomes cause greater life satisfaction, rather than some other factors increasing both income and life satisfaction.

That’s why it’s useful to bring in evidence from within countries, to see if the effect holds within a single country as well.

Source: Our World in Data

Each country in the chart above is represented by a line, connecting the average reported life satisfaction of people in five income quintiles within the country. The chart is messy, but in general, the story is the same: most of the lines trend upwards, with richer citizens reporting a higher life satisfaction than poorer citizens.

Source: “Subjective Well-Being and Income: Is There Any Evidence of Satiation?”, Betsey Stevenson and Justin Wolfers, NBER Working Paper 18992, April 2013. Reformatted in the Economist

The chart above shows a more limited sample of countries. This data is older, from 2013, but it shows a similar trend: if we look at the US line, we can see that average life satisfaction ranges from about 6.6 (out of 10) at the lowest incomes, to around 7.5 at the highest incomes. Compare this to the India line: average life satisfaction is lower in India overall, but just as in the US, poorer Indians on average report lower life satisfaction (about 4.2) than richer Indians (about 5.8).

Other ways of measuring life satisfaction also show within-country differences in life satisfaction depending on income. For example, in the chart below, participants in the US were asked whether they were ‘very satisfied’, ‘somewhat satisfied’, ‘somewhat dissatisfied’ or ‘very dissatisfied’ (rather than being asked to rate their satisfaction on a scale). The proportion of ‘very satisfied’ people is higher in higher income bands, and the proportion of dissatisfied people is lower. Although the number of participants is not high in the lowest and highest bands, on the right hand section of the table (Panel B) we see a fairly steady increase in the percent of people who are very satisfied as income rises. 

Source: “Subjective Well-Being and Income: Is There Any Evidence of Satiation?”, Betsey Stevenson and Justin Wolfers, NBER Working Paper 18992, April 2013. 

Note that even this within-country data doesn’t prove that income causes greater life satisfaction: all these polls show is a strong association between income and life satisfaction. Perhaps even within countries, other factors (such as the quality of infrastructure in richer vs poorer areas of a single country) cause people to feel more satisfied with their lives and to earn more money. However, given that across-country and within-country evidence agree, and it’s reasonable to assume a priori that money can contribute to life satisfaction by enabling people to buy things they want and need as well as to have more control over their time, it stands to reason that there is probably a causal link. But we should keep in mind that the data don’t provide absolute proof that an increase in income causes an increase in life satisfaction. 

An additional complicating factor is that this data measures averages. Even if on average it’s the case that greater income causes greater life satisfaction, for any given person, income and life satisfaction could be more or less closely related than average. This means that two people of the exact same income may be impacted very differently by the same increase in income: perhaps the extra money allows one person to leave a career they hate and pursue one they love, whereas the other just puts the additional income into their savings and doesn’t end up using it for anything important. So we have to be careful not to make confident generalizations about individuals, based on the average. 

So, if more money is associated with greater life satisfaction, is it right to say that the wealthier tend to be happier? Not exactly: it depends what you mean by happiness. 

Does more money make you happier day-to-day?

The Gallup polls, and many other studies related to happiness, measure life satisfaction: participants are asked to reflect on their lives holistically and think about how things are going. However, life satisfaction is only one way to measure a person’s happiness. We might also consider how emotionally happy people feel day to day: whether they tend to feel joyous, content and calm, or stressed, depressed and anxious. This is sometimes known as ‘hedonic wellbeing’ or ‘experienced happiness’.

Psychologist Daniel Kahneman and economist Angus Deaton wondered if there was a relationship between this moment-to-moment hedonic wellbeing and money, just as there was with life satisfaction. In a 2010 experiment, they analyzed more Gallup data, this time from 1000 U.S. residents. This survey, rather than asking participants to rank themselves on Cantril’s ladder, instead asked them whether they had experienced specific emotions for a lot of the previous day (for example ‘enjoyment’ ‘sadness’ or ‘worry’).

The researchers then grouped these emotions together into ‘positive affect’ – happiness, laughter and enjoyment – and ‘blue affect’ – sadness and worry. They also measured stress. People with higher incomes were more likely to report experiencing positive emotions the previous day, and less likely to report sadness, worry or stress.

Source: “High income improves evaluation of life but not emotional well-being”, Daniel Kahneman and Angus Deaton, PNAS 107, September 2010

As with life satisfaction, the relationship between hedonic wellbeing and income was logarithmic in Kahneman and Deaton’s data for lower incomes, meaning that doubling a person’s income was associated with a fixed increase in their hedonic wellbeing. However, unlike with life satisfaction, this experiment seemed to show that increases in emotional wellbeing taper off at around $75,000 per year (in the U.S.); after that, extra money didn’t seem to increase wellbeing anymore.

On the graph above, ‘ladder’ refers to Cantril’s ladder, the life satisfaction question asked in other studies. You can see that this line continues to go up while the hedonic wellbeing lines flatten out. Again, note that this x-axis is on a log scale, with income doubling every division.

This provides an interesting contrast to the life satisfaction studies: it seems that if you already make $75,000 a year in the U.S., you might become more satisfied with your life if you made more money, but you’d be unlikely to have more positive emotional experiences day-to-day. This makes some intuitive sense: money helps us meet our basic needs and can solve a lot of problems, but there are other problems that it’s much harder to solve with money and that even billionaires have to face — for example relationship conflict, bereavement, or mental and physical illness. Maybe once you’re making $75,000 a year, you can solve all the problems that are soluble with money, leaving only those trickier problems.

But it turns out that story is wrong! 

Questioning the taper 

It makes intuitive sense that day-to-day, hedonic wellbeing would taper off at higher incomes. However, Kahneman’s and Deaton’s result did not hold up to scrutiny. A decade later in 2021, economist Matthew Killingsworth tried to replicate their conclusion on new data. He found something different: in his analysis, hedonic wellbeing did continue to increase with income, even above $75,000 a year. It didn’t taper off or plateau. The slope of the graph was also the same below $75,000 a year and above $75,000, meaning that on average, a doubling of income from $15,000 to $30,000 a year and a doubling from $75,000 to $150,000 a year are associated with the same increase in emotional wellbeing.

What was going on here? Kahneman (the author of the first paper), Killingsworth (the author of the second paper) and psychologist Barbara Mellers, keen to get to the bottom of this, acted like ideal scientists: they embarked on an adversarial collaboration, all working together to try to work out why Kahneman’s and Killingsworth’s experiments had got such different results.

They discovered a few important differences between the 2010 and 2021 studies. First, the 2021 study used more accurate data collection methods. In Kahneman’s 2010 study, surveyors had asked participants to recall whether they’d felt certain emotions the previous day. But in Killingsworth’s experiment, participants instead received smartphone notifications several times per day that asked them to rate how they were feeling at that moment, on a scale of ‘very bad’ to ‘very good’. Since they asked participants multiple times and asked them to describe their feelings in the moment, rather than relying on memory, they got a more accurate measurement of each participant’s general hedonic well-being. There were also many more data points in the 2021 study: over a million data points from 33,000 people (vs 1000 people in the 2010 study, which when separated into different income buckets makes it a bit thin). Killingsworth’s experiment also surveyed more high-income people and had more different income bands, rather than lumping together all participants who made over $120,000 a year.

However, despite this, Kahneman and Killingsworth (when working together) did find some evidence for a plateau in hedonic wellbeing above $75,000 a year in income. So why didn’t it appear in Killingsworth’s study? Why did Killingsworth find that emotional wellbeing didn’t seem to plateau even at high incomes, up to $500,000 a year and beyond?

When the authors re-examined the data from the 2021 study, they discovered that the plateau did exist — for the 20% of the population with the lowest emotional wellbeing. That is, if you experience lots of negative emotion to begin with, additional income is not associated with increased hedonic wellbeing once you make over $75,000 a year, but if you have average or high hedonic wellbeing, additional income is associated with an increase in day-to-day positive emotions, even if you are already wealthy.

As they investigated, they realized that they had missed this because their methods of measuring wellbeing worked better as measures of unhappiness, or negative wellbeing: they couldn’t easily differentiate between people who were pretty happy, moderately happy, and very happy (in terms of their day-to-day emotions). This made it more difficult to spot that the plateau only existed for the 20% of the population with the lowest day-to-day wellbeing. 

So does that mean day-to-day wellbeing does increase the richer you get?

Well, yes…and no. Media discussions of this story focussed simply on whether happiness increases with income, since that was the main focus of the research. 

But another relevant question — probably more relevant for most people — is how much happier does more money make you? Let’s look at the data (on a regular, non-log scale):

Source: our reanalysis of data from Kahneman, Killingsworth and Mellers’ 2022 adversarial collaboration.

Does it look like average wellbeing increases in the higher income categories? It basically looks like it doesn’t! If you squint, you can just about notice that the bar in the $625,000-a-year band is a tiny bit higher than the bar in the $15,000-a-year band. 

You can only see that logarithmic upwards line if you zoom way in:

Source: our reanalysis of data from Kahneman, Killingsworth and Mellers’ 2022 adversarial collaboration.

Look at the y-axis. In this zoomed-in version, you can see that the lowest point of the curve — the average wellbeing of people making $15,000 a year — is at about 60.9, on a 100-point scale. The highest point — people making $400,000 a year — is 65.8. That is, the difference between the poorest and the wealthiest is only about 5 points, on a 100-point scale!

The takeaway from these hedonic wellbeing studies is often ‘more money makes you happier’. While this isn’t wrong, a more relevant lesson from this research might be that people with vastly different levels of wealth have surprisingly similar levels of emotional wellbeing. 

To put this another way, even if we assume this entire effect is causal (that is, that income is causing all of this increase in emotional well-being), then if you made 25 times more money, taking you from the bottom 10% to well within the top 10% of US incomes, you should only expect to get half a point happier on a 10-point scale (from 6 to 6.5). 

We suspect that many will find the small size of this effect surprising. 

To be fair, the authors of the adversarial collaboration did mention this, but it wasn’t the focus of the paper, and we suspect that many people who looked at the paper briefly would have missed it:

‘[Kahneman and Deaton] reported that the effect of an approximately fourfold difference in income is about equal to the effect of being a caregiver, twice as large as the effect of being married, and less than a third as large as the effect of a headache.’

What is the more interesting finding — that emotional wellbeing goes up logarithmically with income, or that emotional well-being goes up very little with income? We think that the second finding is likely to be the more important one for most people.

Now, of course this result doesn’t mean that you yourself wouldn’t have much higher emotional wellbeing if you were to increase your income substantially — but the link seems weak enough that we should be wary about assuming we’ll feel much happier moment to moment if we make more money. 

Life satisfaction varies much more than hedonic wellbeing 

If hedonic wellbeing varies so little, what about life satisfaction, the variable we discussed at the beginning of this article? The data show that people with greater incomes have higher life satisfaction, on average, but is this difference equally tiny? 

No: if we look again at the within-country data on life satisfaction, we can see that the US line spans more than 1 point on the 10-point scale. What’s more, the difference is even greater if we compare countries: the poorest in India are about 3.5 points less satisfied, on average, than the richest in the US.

Source: “Subjective Well-Being and Income: Is There Any Evidence of Satiation?”, Betsey Stevenson and Justin Wolfers, NBER Working Paper 18992, April 2013. Reformatted in the Economist

So, life satisfaction, in general, seems to vary much more with income than hedonic wellbeing. 

–

To make a more direct comparison, looking at US data, every doubling in income is associated with an increase of 0.6 on 10-point scale in life satisfaction, and an increase of only 0.1 on a 10-point scale in hedonic wellbeing (or equivalently, 6 points on a 100-point scale for life satisfaction, and just 1 point for hedonic wellbeing).

Another way to understand this difference is to measure the variance from the mean of each measurement, which Killingsworth did in his 2020 study. 

Source: ‘Experienced well-being rises with income, even above $75,000 per year’, Matthew Killingsworth

Note that the x-axis here is logarithmic (with incomes doubling at each division), and the y-axis uses not absolute scores but z-scores, which measure how many standard deviations each participant’s score is from the mean. The blue “life satisfaction” line slopes up more sharply than the red hedonic wellbeing line, meaning that as income goes up, life satisfaction rises faster than experienced well-being (it increases by a greater number of standard deviations).   

This is counter-intuitive: if people’s day-to-day feelings are middling (as they seem to be, on average), shouldn’t this lead to a middling level of life satisfaction? Are people bad at remembering their day-to-day emotions, so that when they answer life satisfaction questions, they overestimate or underestimate how good their life is?Perhaps. But more plausibly, life satisfaction and hedonic wellbeing are different elements of happiness, rather than two different ways to measure a single, unitary trait. Most people value positive emotions, but they also value other things, including career, family, status, material goods, achieving their goals, and money itself. And sometimes, striving to achieve something you aspire to — something that would increase your life satisfaction — will cause more negative emotions in the short run — for example, when you overwork yourself and take on lots of stress to hit a work milestone. 

Key takeaways – Are people, on average, happier when they make more money? 

We’ve learned that:

• Making more money is associated with moderately greater life satisfaction 
• Making more money is associated with a very small increase in hedonic wellbeing 
• …unless we’re talking about is the unhappiest 20% of people who already make $75,000 a year or more in the U.S., in which case additional income was not associated with greater hedonic wellbeing
• In both cases (life satisfaction and hedonic wellbeing), extra income has a greater effect when you start off with less money – or, more precisely, each doubling of income is associated with the same effect.  

So, the link between income and happiness  depends on what you mean by happiness, and how much money we’re talking about. Ultimately, you can make some predictions about the way you might feel if you had more or less money, but like so many scientific questions, the answer is messy, and you’re unlikely to know for certain how things will turn out. Perhaps this is why our cultural clichés give us such mixed signals about this question! 

Building Happiness Habits

You’ve learned how income is related to happiness, but if you’re interested in exploring habits that could help you improve your day-to-day hedonic wellbeing, we encourage you to test Clearer Thinking’s “Building Happiness Habits” interactive tool.

It works by pairing certain happiness techniques – namely mindfulness and gratitude – with everyday activity triggers such as walking or checking social media, thereby cultivating happiness-improving mental habits. 

We tested each technique on hundreds of users and found that they made a positive difference for those who practiced them, in just 3 days.

Each technique is:

• Easy to learn – there’s no need for long, difficult training in order to be able to perform them.
• Simple to apply — there’s just one main thing to do, not a bunch of steps.
• Time-efficient — it takes just a few minutes a day to practice them.

Ready to make your days a little brighter?

Here are five ways causation without correlation can occur:

1. Averaging: increasing A sometimes causes increasing B, but other times, it causes B to decrease. The two balance out. Since correlation measures the average relationship, the correlation is zero.

For example, if you drive up a symmetrical hill and then down the other side, there’s no correlation between how many times the wheels have revolved on the hill and the car’s height above sea level, even though the revolving of the wheels causes the altitude to change.

2. Confounders: when A increases, that causes B to increase, but change is coming from C, and increasing C both causes A to increase AND causes B to decrease. The decrease in B from more C is the right amount to counteract the increase in B caused by C causing A to increase.

Example: A is in love with B and best friends with C. When C is happy, that makes A happy. When B compliments someone in front of A, that makes A unhappy. When B complements C, that makes C happy, making A happier, but the complement itself makes A unhappier, balancing it out.

3. Control: a system is designed to stabilize the value of B. Even though increases in A normally cause an increase in B, the system resists this change by exerting the opposite effect on B with the goal of keeping B constant.

For example, opening the vents would normally cool down the house, but when the heating system detects a draft, it causes the heating system to start working harder in order to keep the house at the desired 70 degrees.

4. Multiple causation: while A does cause C, C is also caused by B (so either A or B on its own is sufficient to cause C). Since A and B are both active, deactivating one has no effect on C. A and B never get deactivated at the same time, so the relationship between A and C is 0.

Example: on death row in a certain country, they administer a lethal dose of two different poisons. They have experimented with removing one or the other poison, and this did not affect whether the inmate died.

5. Deactivated causation: an increase in A causes an increase in B normally, but only if C is active. Since C is not active, there is no correlation measured between A and B. For example, force on the gas peddle only causes the car to increase speed when the car is turned on

All of this being said, while causation does not NECESSARILY imply correlation, causation USUALLY DOES imply correlation. Some software that attempts to discover causation in observational data even goes so far as to make this assumption of causation implying correlation.

This piece was first written on March 14, 2022, and first appeared on this site on December 7, 2023.

Additionally, many studies have found that SSRIs (and other medications) help people with both depression and anxiety, as do certain therapeutic modalities such as Cognitive Behavioral Therapy, suggesting further linkage.

Findings like these lead some to conclude that the two diseases are just one and the same, or part of the “same thing.” I don’t agree. The main reasons I don’t agree are because:

A. Anxiety and depression feel different internally (i.e., they have different “qualia” for most people). This is a major part of how we can tell which one we’re experiencing at a given moment. For instance, for me, I am more likely to experience anxious feelings in my upper chest, with depressive feelings being more like an “emptiness.”

B. Some events cause anxiety but not depression (e.g., worrying that there is a tiger hiding by the watering hole because you saw a tiger there at another time); others cause depression but without necessarily causing anxiety (e.g., having trouble getting over the death of a beloved friend a year after the event).

C. The behavioral changes they cause tend to be different since anxiety tends to cause avoidance of the things you fear, whereas depression tends to produce a lack of motivation.

D. There are some personal factors that are strongly linked to one but not the other. For instance, in our research, we found that negative self-talk is strongly linked to depression, but it is not linked to anxiety (once you control for depression).

Clearly, though, anxiety and depression ARE very connected.

So, how ARE they linked?

Here’s what I think the main links between anxiety and depression are:

1. Anxiety sometimes causes depression since anxiety at high levels leads people to avoid important things of value out of fear and (in some cases) out of exhaustion. Missing out on the things they value has a tendency to make people depressed. And feeling trapped by your anxiety can also give a sense of hopelessness, leading to depression.

2. Depression sometimes causes anxiety since feeling that “nothing really matters,” or that there is “no point in trying,” or that “I’m worthless” can lead to difficulty with motivation, exhaustion, and giving up, which can cause a snowballing set of anxiety-inducing life problems (e.g., fear of losing one’s job, or fear of losing friendships, or a piling up of life chores that go undone, with increasingly large consequences).

3. There are factors that increase one’s chances of getting both depression AND anxiety, such as early life trauma, negative life events (like losing a job), and poverty.

Therefore I see the links this way:

Depression sometimes causes anxiety.

so: D -> A

Anxiety sometimes causes depression.

so: A -> D

A negative spiral can occur, with anxiety causing depression, which causes anxiety, which causes depression, and so on, in a feedback loop.

so: A -> D -> A -> D -> …

And difficult life situations and events can cause BOTH simultaneously.

so: X, Y, Z -> A & D

So yes, depression and anxiety are highly related, but they don’t, by any means, seem to be “the same thing.”

This piece was first written on January 10, 2021, and first appeared on this site on December 23, 2022.