Data dive: Money does not buy much happiness

What leads to happiness, according to studies

News headlines have been misleading regarding income and happiness

In my adult life, I’ve witnessed two waves of mass media reporting on the science of income and happiness. The first wave of reporting, from around 10-15 years ago, claimed that income is important for happiness up to about $75,000 — after that, it stops making people happy. For example:

That’s not an isolated headline. Here are others:

Those headlines were all based on one 2010 study by Daniel Kahneman.

After the above headlines came out, in the last several years, there’s been a shift in the reporting — now, we hear that there’s no limit to how much money makes people happier:

Apparently the previous reporting was actually a conspiracy by the “rich” and “powerful” to make you think you don’t need money! Per The Guardian, anyway…

Those are based on a newer study by Matthew Killingsworth, which looks at moment-to-moment happiness; basically it uses data from an app that asks people their income, what activity they are doing, and how happy they are, at any given moment.

So, why all the ping-ponging in the media reports? What’s the truth?

The saga of the research turns out to be “exciting” in that it encapsulates incompetence in both academia and the pop-science news media, but it also shows how professors and reporters were, admirably, willing to correct themselves. But, despite the correction, it hasn’t led the media to give readers a much more accurate picture.

Issues with the first study

To solve the conflicting headlines/studies above, there was an adversarial collaboration between Kahneman, the professor behind the first study that sparked media attention, and Killingsworth, who did the second study. That means they wrote each other back and forth arguing why their study was right, in the presence of a mediator, until they got to the bottom of the differences.

Through that process, they determined that the first study had big issues.

Issue 1: $75,000 was not actually the cutoff, even accepting the original study’s methods

Although the media reported $75,000 as if were the magic number, the adversarial collaboration write-up notes: The threshold of $75,000, which has been frequently quoted, is simply the midpoint of the “60 to 90K” income category.

Also, the 2010 study actually found that the benefits of income merely slowed around $60,000 - 90,000, and only stopped around $90,000 - $120,000. Here’s the graph from the adversarial collaboration study, showing the problem:

The graph makes clear that money only fully stops contributing to happiness somewhere between $90,000 and $120,000.

So the “$75,000” claim was always an artifact of a lazy academic abstract, and lazy journalism on top of that.

Also, the first study was from 2010, and we’ve had a lot of inflation since then. So “$90,000 - $120,000” means $130,000 - $174,000 in today’s dollars.

Issue 2: A “ceiling effect” made it so the study couldn’t measure happiness beyond a fairly low level

Kahneman’s scale of happiness was not sufficient to actually measure happiness; instead, it was measuring something more like “not being unhappy” — and that’s why they couldn’t pick up further gains after a certain income level.

The collaboration authors, Killingsworth and Kahneman, write:

In the range of high incomes, in particular, the average reported positive affect is 89% of a perfect score … The high density of maximum scores … indicates that the items do not adequately discriminate among degrees of happiness—there is a ceiling effect.

A more precise summary, they say, would have been:

the natural summary would be “Unhappiness diminishes with increasing income, but there is no further progress beyond ~$75,000 [$90,000 - $120,000]”

So unhappiness doesn’t decrease beyond that point, because the kind of unhappiness caused by material struggle has mostly been solved. But the second study picked up on greater degrees of happiness, and found that does keep increasing with wealth, without a cutoff.¹

Income increases moment-to-moment happiness without limit, but the effect is TINY

The reason I dug into all this was that I read this article by Spencer Greenberg and Amber Dawn Ace, which noted how tiny the impact was on happiness. Could that be right? So I read through the original studies to verify it.

The adversarial collaboration mentioned above says that the effect is tiny in one paragraph in the middle:

It is important to note that the relationship is weak, even if statistically robust. The correlation between average happiness and log(income) is 0.09 in the experience sampling data … and the difference between the medians of happiness at household incomes of $15,000 and $250,000 is about five points on a 100-point scale. The flattening and accelerating patterns are even smaller modulations of a small effect.

All those headlines in the world’s biggest newspapers, over merely “smaller modulations of a small effect.”

The concrete numbers are stark. Killingsworth and Kahneman conclude that increasing income from $15,000 to $250,000 gives you just a 5 point shift in a 100-point scale. [Side note: I downloaded Killingsworth and Kahneman’s data and tried to replicate their quote above, and found that the professors mixed up the median and the average; the above quote from their paper actually refers to averages, not medians.² The error doesn’t impact their bigger point.]

What does the small effect look like? Greenberg and Ace also downloaded Killingsworth and Kahneman’s data, and made these informative graphs from it:

So happiness at any given moment does rise with income, but the effect is small.

Few external conditions change moment-to-moment happiness much!

The effect of income on moment-to-moment happiness is tiny, but, as Killingsworth and Kahneman note:

the emotional effects of other circumstances are also small … the effect of an approximately four- fold difference in income [for example, going from $62.5k to $250k] is about … twice as large as the effect of being married, about equal to the effect of a weekend, and less than a third as large as the effect of a headache.

Quadrupling your income is about as impactful as the day being a weekend, vs a weekday. Is that plausible?

I have an app that I use called Dalio, where every day it pings me once, and I click a face to tell it how happy I am. I use it because I’m a data wonk and find these things interesting.

I ran the numbers, and in 2023, on a hundred-point scale where the faces above are worth (100, 75, 50, 25, and 0, respectively,) my weekends were 2.4 points higher than weekdays.³

That’s in line with people in the Killingsworth dataset, in which the median person making $65,000/year scored 62.9, while the median person making $250,000/year got 65 (a 2.1 point difference.) Per the study, that 2.1 point difference is “about equal to the effect of a weekend.”

The study, and what I use, are different-but-similar apps, and not precisely comparable. But the point is that my personal data show a similarly small effect from a weekend. So I think their study is plausible.

Their study also suggests that being married is worth about 1 point out of 100 (though that combines both unhappy and happy marriages; probably there are big effects in either direction, which average out to a 1-point effect for the whole married population.)

Killingsworth and Kahneman also find that a headache is worth about negative 6 points — enough to put even a married rich person on a weekend back in the red.

Fortunately, most headaches are relatively temporary.

What does increase moment-to-moment happiness?

While changes big external things has relatively small impacts on happiness at any given moment, the activities one engages in makes a big difference while a person does them.

Here’s a UK study from 2015, using essentially the same method:

I don’t think anything is too surprising that ranking, but it’s interesting and useful to see it quantified.

Income has more of an impact on life satisfaction

The above analyses consider happiness measured at any given moment in life. That does seem like a reasonable measure of happiness — aren’t our lives in some sense the sum of all our moments?

But it’s not the only reasonable way to measure it.

Spencer Greenberg puts it eloquently:

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. 

Making money increases life satisfaction more than it does momentary happiness across a life, but the effect is still modest. Greenberg summarizes the data:

Looking at US data, every doubling in income is associated with … 6 points on a 100-point scale for life satisfaction, and just 1 point for hedonic wellbeing…

So for example, if someone’s income goes from $62,500 to $250,000 (two doublings) someone’s life satisfaction would tend to go from, say, 60 to 72.

That’s an increase, but not enormous compared to the size of the income gain.

Greenberg summarizes:

Making more money is associated with moderately greater life satisfaction 

Making more money is associated with a very small increase in hedonic [moment-to-moment] 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.

Conclusion

Some happiness seems to be genetic. A 2016 study in the Journal of Happiness Studies notes:

“Recent meta-analyses of such studies report genetic influences (i.e., heritability) to account for 32–40 % of the variation in overall happiness …

Evolution programmed happiness in people to tell us to keep doing what we’re doing, sadness to advise us to lay low, and discontent to push us to change things up.

Just like people vary on things like extroversion and openness, people also vary plenty on their baseline happiness.

But the above also suggests has people have some control over most of our happiness. Creating active lifestyle habits helps significantly with moment-to-moment happiness, according to studies that track that. Money won’t help much.

Mental habits like mindfulness and gratitude may help. Spencer Greenberg has an interesting website aiming to help people build “happiness habits.” It seems worth checking out.

For “life satisfaction”, money does help, but less than one might think. Presumably it’s mostly a means to an end — it helps people achieve satisfaction by enabling them to start a family, a business, to change the world, etc. Elon Musk, for example, gets the “means to an end” nature of money, and is fully using all his ~$200 billion to change the world in ways that are meaningful to him.

It’s worth noting that almost all of these studies are correlational, and more experiments should be done in the future to test causation.

It’s also true that it’s not healthy to live one’s life always thinking “how do I maximize happiness?!” But it seems worth reading about at least once or twice, to help set big picture priorities and plans.

I also didn’t cover everything in this post. It’s worth noting that studies also consistently find that religion, charity, and socializing (even for introverts) are all particularly helpful for happiness.

By the way, can we talk about how good ChatGPT is getting at art?

1. A minor footnote, in my opinion (but given a lot of space in the collaboration study) is that people at the 15th percentile of happiness don’t seem to gain from more money, whereas people in the 85th percentile gain extra from it. But as the paper later notes, “the flattening and accelerating patterns are even smaller modulations of a small effect.”

I don’t think it’s worth dwelling on, but maybe there’s something in the psychology of a naturally-happy person to be able to appreciate gains, regardless of how good things already are. And for naturally-unhappy people, they appreciate removing negative things from their life, but they’re unable to gain much positive happiness beyond that level. 

2. I downloaded their dataset and calculated the difference in the medians to be 3.8 points (respondents at $15k income had a median 61.2, while those at $250k averaged 65.)

In the contrast, the difference in the averages of the two income groups is 4.7 (it goes from 60.83 at $15k, to 65.5 at $250k) which is actually “about 5 points.” So I think it’s clear they just mixed up median and average.

Anyway, it doesn’t affect the conclusion, which is why I’m putting it in a footnote. But in the interest of thoroughness/accuracy, it seems it deserves a note. Can’t trust things just because they’ve been “peer reviewed”!

3. Specifically, I averaged 61.1 on weekdays and 63.5 on weekends.