Can money buy happiness?

In my previous post I looked at the distribution of wealth, which then obviously leads to the question of whether money can buy happiness. And according to recent research more seems indeed to be better. This is according to new research by Matthew Killingsworth, a senior fellow at the Wharton School of the University of Pennsylvania, which shows that the correlation between wealth and well-being does not diminish once a certain level of income is reached. He has recently updated a study published last year that questions the thesis of a ‘happiness plateau and proves that both millionaires and billionaires are significantly happier than people who earn at least $500’000 a year.

Killingsworth together with psychologist Daniel Kahneman was part of a team which questioned a famous study by Kahneman and economist Angus Deaton published in 2010 which stated, that happiness increased with a rising income to a level of $60’000 to $90’000 per year and then stagnates. The new study, which is self-published by Killingsworth (Kahneman passed away earlier this year), found that people with a net worth in the millions or billions have an average life satisfaction score of 5.5 to 6 out of 7, compared with a score of about 4.6 for people with an annual income of about $100’000 and just over 4 for people with an annual income of $15’000 to $30’000. That makes the difference in happiness between the richest and middle-income groups almost three times larger than the difference between middle- and low-income groups, Killingsworth said. So clearly more money makes for happier people.

Conventional wisdom and previous studies (including the one from 2010 cited above) has it, that this is only true to a point and that, like with many things, the law of diminishing returns applies, where the more money you have, the less actual happiness you get out of each extra million (or billion). What then determines the level of contentment wealth provides? People often assess their elation not just by their absolute level of wealth, but by how it compares to those around them. If someone is much wealthier or poorer than their peers, it can impact their satisfaction. Furthermore, some research also shows that spending money on others, through gifts or charitable donations, can lead to greater happiness than spending it on oneself, as it fosters social connections and a sense of purpose.

Based on this it would be reasonable to assume that, for example, billionaire philanthropists such as Bill Gates, Warren Buffet or MacKenzie Scott (the ex-wife of Amazon founder Jeff Bezos) are happier than Bernard Arnault (CEO of LVMH), Amancio Ortega (founder of Inditex which owns the fashion retailer Zara) or Elon Musk, with the latter three not being known for big charitable donations. Having said that, it could be that they simply donate more discreetly, although Mr Ortega is known for regularly investing in his fast growing portfolio of commercial properties around the world, which last year was valued at some €15 billion.

And of course money is not everything: Less wealthy individuals find contentment in strong relationships, where close connections with family, friends, and community provide emotional support and a sense of belonging. Doing work that feels purposeful or contributes to society, even if it’s not highly paid, can also bring satisfaction. For us not so financially well off, spending our hard earned dough on experiences such as a nice holiday rather than material things may provide a longer lasting and thus more satisfying high according to Kristen Duke, a social scientist at the University of Toronto. Warren Buffett has frequently emphasised that his happiness comes from things other than wealth. Despite his billions, he lives a relatively modest lifestyle, still residing in the home he bought in 1958. Oprah Winfrey, one of the world’s richest women, has shared that wealth brought her financial freedom, but it didn’t fundamentally change her level of happiness. She believes that personal fulfilment, self-awareness, and using wealth to help others have made her life meaningful.

So, while Mr Killingsworth‘s study shows that wealthy people are happier, I come to the conclusion that irrespective of wealth we all may derive our satisfaction not from our fortune and material things itself, but from what we are actually doing with our money, from meaningful experiences and relationships.