Lifestyle

I Knew Money Can Buy Happiness

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In 2010, Nobel Prize winners Daniel Kahneman and Angus Deaton found that happiness rises with income up to about $75,000 a year*. After that, more income doesn’t increase happiness. However, a 2023 study by Matthew Killingsworth found that happiness improves with higher earnings, up to about $500,000.

*Adjusted for inflation, that’s about $100,000/year in 2024.

Wow, there seems to be a big conflict between the two studies. Most of us would like to believe that money doesn’t matter that much. It’s an attractive idea for regular people. Rich people shouldn’t be happier than the rest of us. Bastards!

Last year, the authors of the two studies teamed up to figure out what happened. It turned out that the first study really measured unhappiness. If you make less than $75,000, money can be a big source of stress. Once you make more than that, most people are less unhappy. At that point, the scale topped out for the original Kahneman-Deaton research.

The scale

Here are the three questions from the 2010 studies.

  • Did you smile or laugh a lot yesterday?
  • Did you feel happiness a lot yesterday?
  • How about enjoyment?

Many participants answered yes,yes,yes. That’s the happiest you can be in this research. Maybe the high-income earners were happier, but they couldn’t communicate it with just 3 yes/no answers. If you give them a slider, they could have indicated that more income = more happiness. The scale topped out at yes,yes,yes.

The Killingsworth research had participants report their happiness on a range that went from very good to very bad. With the slider, it turned out that more income generally means more happiness. It seems high-income earners are happier than the rest of us.  

Flaw?

However, I still see a big flaw with the happiness research. Currently, I make much less money than when I was an engineer. But I’m way happier than I was in 2012. I’m also wealthier than ever due to investment gains. I think they need to take net worth into account somehow. Retirees are some of the happiest people around and most of us don’t have that much income.

Generally, I agree that more money = more happiness. However, money doesn’t fix everything. I was extremely unhappy when I was working full-time. Even when I made more than $100,000, job dissatisfaction was a huge source of unhappiness. It was overwhelming everything else. After I retired early, I was free to be myself again. Life is so much better now. Money can increase happiness, but only a little bit. If you have problems money can’t fix, it won’t help much.

Yesterday

What were your answers to the questions above? Mine was yes, yes, yes.

Yesterday, we visited the Nisqually Wildlife Refuge and had an awesome time. We hiked, learned many interesting things about the estuary, listened to a ton of Star Wars trivia from RB40Jr, and enjoyed a delicious dinner in Olympia. It was a beautiful day. It doesn’t take a lot of money to have a happy day.

Well, gas and dinner cost around $150. I guess happiness isn’t that cheap. We’re wealthy enough to spend this much every weekend if we want to. Many families aren’t as lucky.

My nerdy conclusion

Here is my unscientific conclusion. Happiness looks kind of like the Social Security Bend Point Chart. Let me explain.

Social security benefits estimate 2020

Here is a chart of the Social Security Retirement Benefits from my post – How Early Retirement Impacts Social Security Benefits. There are two bend points in the Social Security Benefits formula.

I think a chart for happiness vs money would have a couple of bend points as well. It probably looks something like this.

Income will help increase happiness sharply until you reach about $100,000/year. This is the point where you have enough money to live in the United States. After this, money will still increase happiness a bit because you want to save for the future. Once you achieve financial independence, more money won’t make much difference. At that point, you don’t have to worry about money anymore. You’ll be free to pursue happiness.

What do you think? Does more money = more happiness? I don’t think more money would make a big difference once you’re over a certain threshold.

Story on NPR – Can money buy happiness?

Kahneman update on wellbeing study

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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