Can money buy happiness? A review of the data

Everyone knows the adage "money can't buy happiness", although few of us seem to believe it. While we might chase fortune in the hopes of increasing wellbeing, it is clear that being wealthy does not guarantee happiness; at least anecdotally, there are many who are tremendously wealthy, yet entirely unhappy. But what does the data say on the relationship of money and happiness? Can we link increases in income to wellbeing, and if so, in what contexts?

Here’s a summary of some often-cited data on the relationship of money and happiness in high-income countries. (Note that respondents surveyed in these studies were primarily from the U.S.)

Kahneman & Deaton, 2010: 

Daniel Kahneman and Angus Deaton find that money can buy happiness, but only up to a point. This well-known study found that emotional wellbeing rises logarithmically with income. In layman’s terms, this means that as income increases, wellbeing increases too – but at a slower and slower rate. Khaneman and Deaton’s data also suggested that once income surpasses about $75,000 per year, wellbeing stops increasing altogether. However, more recent research has shown that the log-linear relationship persists well beyond 75K for most people — though there is likely a flattening effect around 100K for the least happy people (see study 3).

Read Kahnemann & Deaton, 2010

Killingsworth, 2021

Matthew Killingsworth challenges Kahneman and Deaton’s finding in a paper entitled "Experienced well-being rises with income, even above $75,000 per year” Note that Killingworth also found a log-linear relationship, meaning that it takes a substantial increase in income to observe a relatively small happiness boost, especially at higher income levels. For this reason, in our 2021 video on Money and Happiness (below) we jokingly renamed Killingsworth’s paper to: “Money barely increases happiness above 75,000 per year – unless you really value money, and even then not by much.” However, we wish to clarify that:

• The 75K threshold identified in the 2010 Kahneman study does not hold up under new research (see Killingsworth & Kahneman, 2023)
• The remapping of the Killingsworth data (at 3:13 in the video) that we suggested could show a plateauing in the happiness-income relationship at $200K USD per year was not meant to imply that this is good evidence against a continuing log-linear relationship, particularly considering the small sample sizes in the high income groups.

That said, consistent with a log-linear relationship, the effect of extra income is certainly much smaller at high incomes. Additionally, the observed increases in happiness correlated with even significant extra income are quite small.

Therefore, the key takeaways in the video below — that there are diminishing returns to income gains and that that spending on others with less income is generally a much better bargain — do hold true, even given the new 2023 research, which for the most part, overturned the finding of any sort of "plateau" or "threshold" except for in a small (very unhappy) subset of the population.

Read Killingsworth, 2021

Killingsworth & Kahneman, 2023:

Killingsworth and Kahneman team up in what’s known as an “adversarial collaboration” to try to get at the root of why their data showed different things. They found that one’s starting level of happiness affects what will happen to that happiness as income increases. For the least happy people, income does increase happiness up to a point (around 100K) but then ceases to have any effect. Conversely, for the most happy people, once income surpasses 100K, the happiness boosts also increase! For the majority of people, however, the log-linear relationship between income increases and happiness persists, meaning that the overall takeaway (more money does make you happier but not by very much) seems to persist across all three studies. To make this more concrete, a doubling of income (whether below or above 100K and no matter the starting level of happiness) was associated with a happiness increase of less than 2 points on a 100 point scale.

Read Killingsworth & Kahneman, 2023

The takeaways for charitable giving

Okay, so what does this mean in terms of giving to charity? Should we be worried that giving to others might markedly decrease our wellbeing?

On personal happiness

Based on the data above, the answer seems to be no – you’re unlikely to experience a decrease in wellbeing from giving to others, even if you give more than average. The effects are so small that – even if they happened to be causal – you’d have to give more than half your income away to feel even a 2 point decrease in happiness (and that’s on a 100 point scale!) Of course, if you give so much so as to not be able to meet your basic needs, that could very well affect your wellbeing, but as long as you can safely donate, it’s unlikely that sacrificing some income would lead to any noticeable decrease in happiness.On the contrary, it will probably make you happier.

There is some evidence that prosocial spending (i.e., spending money to benefit others) improves the spender's happiness. In one experiment, participants were given money and then randomly told to spend it on themselves or others. As it turns out, those who spent it on others reported higher levels of happiness at the end of the study. And anecdotally, we hear often from Giving What We Can members who have taken the 10% Pledge or Trial Pledge that it’s actually made them happier to know that they are living up to their values and having a concrete impact in the lives of others.

So one reason to give is that it will probably make you happier than the other ways you could spend your money (cough, cough…hedonic treadmill).

On impact

Personal happiness aside, let’s talk about what these findings mean for the impact of your charitable giving. All of the studies above supported a log linear relationship between income gains and happiness boosts (with the exception of a plateau for the least happy and a sharp increase for the most happy). This means that generally, doubling someone’s income is associated with around the same increase in happiness, no matter what the starting income is.

In other words, according to these observed trends, doubling Jane's income from $500 to $1,000 increases Jane's happiness by the same amount as doubling John's income from $100,000 to $200,000 increases John's happiness. So that $100,000 increase for John could instead be used to increase the happiness of 200 others like Jane by the same amount.

With a few caveats (the data is correlational, the studies looked specifically at high-income countries), this means that our money goes a lot further when we send it to high-impact interventions overseas…or even just to organisations like GiveDirectly who use it to increase the income of the world’s poorest! (And it seems plausible that increases in wellbeing may also be much larger if that increase in income makes up the difference between being able to afford basic needs and not being able to afford basic needs.)

Conclusion

Given the very small increases in happiness we can expect to experience even with substantial increases in our income in richer countries, it seems that chasing ever-increasing amounts of money is an ineffective way to find happiness for ourselves. On the other hand, giving to highly effective charities could be a great way to increase happiness all around, especially if this money provides basic needs and security that would otherwise be lacking. And if the experiences of 10% Pledgers are any indication, making a commitment to increase the wellbeing of others will probably make you happier too.

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Further reading

Note: Some of the research/analysis in these readings may now be out of date, given the new adversarial collaboration described above.

• Giving and happiness
• Julian Hazell, "How to buy happiness" (2020)
• Elizabeth W. Dunn, Daniel T. Gilbert, and Timothy D. Wilson, "If money doesn't make you happy then you probably aren't spending it right" (2010)
• Robert Wiblin, "Everything you need to know about whether money makes you happy" (2016)