Economists assert that happiness can be bought with money and that happiness is determined by spending habits.
Can happiness be bought with money?
From a young age, I grew up hearing sayings like “You can’t buy happiness with money” and “Treat money like a stone.” But as an adult, I see everyone striving to earn more money. Looking around, those from ‘silver spoon’ families or high-income earners with big salaries all boast impressive social networks. They go on ski trips to America with the so-called ‘successful’ people or embark on remote journeys to places like Antarctica or Africa. No matter how I look at it, their happiness seems possible only because they have money.
Seeing this, I began to question my own values, having lived until now without much thought about money. While too much money can bring unhappiness, it’s clear that most people lack freedom due to a lack of money, and consequently, they are unhappy. Can money buy happiness?
How much must one earn to be happy?
‘Can money buy happiness?’ This is a question humanity has debated for a long time. Money is a human creation; no other animal possesses a similar concept. Yet we are always enthusiastic and excited about money. Why is that? Is it because money can buy happiness?
Humans now enjoy unprecedented material abundance, and people’s incomes continue to rise. However, happiness and joy do not increase proportionally with income. Why is that? Is it because money cannot buy happiness?
“Among the things circulating among people, nothing is more harmful than money. Money destroys cities, drives people from their homes, teaches good people evil, leads them astray, and makes them do shameful things. It even causes them to commit all manner of wicked deeds and crimes.”
This is a line from the works of the Greek tragic poet Sophocles. However, this line may have been born because he didn’t fully understand how money is used. As many studies have shown, if we use money wisely and appropriately, it is possible to buy happiness with it.
The relationship between money and happiness has been a major focus of active research in behavioral economics over the past 20 years. Richard A. Easterlin, a leading scholar in the economics of happiness, was the first modern economist to conduct theoretical research on subjective well-being. In his 1974 paper “Does Economic Growth Improve the Human Lot? Some Empirical Evidence,” he introduced the ‘Easterlin paradox’. This states that ‘at any given point in time, the rich are generally happier than the poor (cross-sectional comparison), but as income increases beyond a certain point, happiness and income cease to be directly proportional (time-series comparison).’ In short, the relationship between happiness and money is directly proportional until a certain threshold is reached—a point that aligns with most people’s expectations—but beyond this threshold, the correlation disappears.
To prove Easterlin’s paradox and identify this threshold, Daniel Kahneman, the 2002 Nobel laureate in economics, collaborated with his colleague and future Nobel laureate Angus Deaton. Together, they published the now widely cited paper “High Income Improves Evaluation of Life and Emotional Well-being” in 2010.
This paper, analyzing data from 1.7 million individuals, argues that people feel happy and evaluate their overall life as generally happy when their annual income reaches $75,000. It further states that once this income threshold of $75,000 is crossed, further increases in income have little significant impact on happiness.
A new survey conducted by Purdue University in 2015 yielded similar results. According to the data, Americans identified an annual income of $75,000 as the benchmark for happiness. Happiness increased as income rose for those earning below this threshold. However, once this benchmark was reached, the rate of increase in happiness showed little change.
How much wealth does $75,000 represent in the U.S.? Based on 2010 figures, adjusting for an annual inflation rate of 1.2% brings it to roughly $89,000 in 2025. Earning this much in the U.S. means basic necessities like food, clothing, and shelter are covered without worry, and expenses like children’s education and cultural activities are also manageable. Note that for dual-income households, the annual income should be doubled for calculation purposes. Movie ticket prices in the U.S. typically range from $5 to $15.
To summarize, when one’s annual income falls below a certain threshold, leading to a struggle with insufficient living expenses, no amount of heartfelt words of comfort can alleviate the underlying anxiety and restlessness. Once these negative emotions take hold, it becomes impossible to feel happiness. When income exceeds a certain threshold and enables an affluent lifestyle, a clear ‘Law of Diminishing Marginal Utility’ emerges between income and happiness. For example, increasing annual income from $10,000 to $100,000 boosts perceived happiness by 3 to 5 times. However, increasing it from $100,000 to $1,000,000 yields little difference in happiness.
Money reduces pain or numbs pleasure
Synthesizing related research leads to the conclusion that ‘money can bring happiness to people, but having more money does not necessarily make one happier.’
On the other hand, some argue that “money does not bring happiness; it merely reduces pain.” They point out that researchers at Princeton and Purdue Universities studied not the quantification of ‘income levels that enable happiness,’ but rather the quantification of ‘income levels that prevent unhappiness.’
Let’s discuss an experiment previously conducted by the BBC. Participants were divided into two groups. One group was given banknotes, and the other group was given paper of the same quantity, and they were asked to count them. Then, they submerged their hands in a water-filled tank for 30 seconds and measured and analyzed the level of pain the subjects felt using the Likert scale, one of the most commonly used rating methods.
The results showed that the subjects who counted the bills endured the pain twice as long as those who counted the paper. This means that the act of counting money reduced the subjects’ pain.
A second experiment was conducted with both groups of participants. This was the so-called ‘social exclusion experiment’. Participants played a computer game called ‘Cyberball’, where three people pass a ball back and forth. The other two participants in the game were not humans but programs, and the participant was unaware of this fact when starting the game. The rules were simple: upon receiving the ball, the participant could throw it to anyone. If the participant threw the ball to one of the two others, they would not receive the ball back; instead, the other two would pass it between themselves. The participant’s emotions during this time were measured and analyzed using a Likert scale.
The results showed that participants from the money-counting group experienced lower psychological distress when excluded compared to the control group. This implies that money not only helps reduce physical pain but can also lessen the psychological distress stemming from difficulties in social relationships.
This conclusion has become a basis for justifying compensation for mental harm. By filing a lawsuit for damages when slandered or insulted by others, one can use money as a means to reduce human psychological suffering.
A subsequent experiment revealed that money not only reduces pain but can also numb pleasure. In August 2010, a Belgian psychologist divided participants into two groups. One group was shown banknotes and then given chocolate to eat. The other group was given chocolate without seeing the bills. The experiment showed that the participants who saw the bills and then ate chocolate experienced significantly less happiness from the chocolate. In fact, this phenomenon is commonly observed around us. A prime example is how wealthy people often struggle to appreciate life’s small pleasures.
The relationship between money and happiness has changed
Why can’t money make us happier? At least two economic principles are at work here.
First, the law of diminishing marginal utility
When our absolute standard of living improves by one level, we quickly become accustomed to it and no longer feel the novelty of the new stimulus. Examples of this are easy to find in daily life. Someone struggling financially might be grateful just to eat rice cake soup during Lunar New Year. But as living standards improve, they can enjoy pork ribs without worry, and eventually even grow tired of eating them. The higher the standard of living, the greater the cost required to derive happiness from material things. To experience the same level of happiness as before, one must earn more money than before.
This is supported by the conclusion of a statistical survey conducted by economist Daniel W. Sacks across multiple countries. His research led him to conclude that ‘people become increasingly greedy in their pursuit of wealth.’ He also argued that earning an extra dollar doesn’t yield an extra dollar’s worth of happiness; instead, wealth must double to achieve the same level of happiness as before.
Second, the law of ‘social comparisons’.
Human self-concept is typically formed through ‘social comparison’. Happiness doesn’t stem from our actual feelings but arises from our ‘comparison group’ around us. Hearing that someone in the comparison group bought a larger property makes one’s own property feel insignificant. Hearing that someone went on an overseas trip makes one’s own domestic trip feel utterly mundane.
Most people gauge their happiness by comparing whether someone with a similar salary earns more or less than them.
A 1998 study asked participants which scenario they preferred: earning $100,000 while someone else earned $200,000, or earning half that amount ($50,000) while someone else earned $25,000. The results showed that most people chose the latter. So, how much money must one earn to be happy? This is determined by the income and standard of living of the reference group around us.
We only feel happy when our income and standard of living exceed those of our reference group. If our income and standard of living fall below theirs, we strive to reach their level, even if it doesn’t bring happiness. As income increases, so does the standard of the comparison group. This means we must compare ourselves to wealthier colleagues or friends. In this situation, while actual income rises, the happiness achievable only through comparison grows increasingly distant.
Recent psychological research supports this. Professor Jean M. Twenge of San Diego State University, along with co-author Professor Lynn Bell Cooper of Lynn University, studied data from 44,198 American adults from 1972 to 2016 and published their findings in the American Psychological Association’s journal Emotion. This study revealed that, on average, higher income correlates with greater happiness.
Jean Twenge was surprised to find that the relationship between income and happiness is strong, and that happiness does not stabilize once income levels stabilize. She stated that even after basic needs are met, increased income leads to greater happiness. She also emphasized that the link between happiness and income has become even stronger compared to the 1970s and 1980s. Compared to the past, we now live in an era where money can buy greater happiness.
Happiness depends on spending habits
But how much happiness can money actually buy? The answer lies in spending habits. Sound spending habits foster greater happiness and yield significant results with minimal effort. A research team led by Professor Elizabeth Dunn from the Department of Psychology at the University of British Columbia, through years of study, proposed seven ways to buy happiness with money.
Buy experiences, not things!
Purchasing experiences like travel or concerts yields more intense and longer-lasting happiness than buying material goods like luxury items or electronics. This is because enjoyable experiences are harder to forget over time compared to objects, difficult to quantify for comparison, and typically hold greater social value.
Spend for others, not yourself!
Humans are social creatures, so healthy social relationships can boost happiness. But consumption itself doesn’t count. As countless studies show, spending on others—like giving gifts or donating—brings greater happiness. This happiness surpasses that felt from spending on oneself.
Pursue small but certain happiness!
There’s a saying: “Many a little makes a mickle.” What if you saved diligently for a long time, accumulated a large sum, and finally acquired that foreign car or luxury handbag you desperately wanted? Unfortunately, humans are creatures of adaptation, and our interest and excitement in such things don’t last very long. So, rather than enduring until ‘a little’ becomes ‘a mickle,’ wouldn’t it be better to use the money you’ve saved so far to experience small but certain happiness?
Minimize expenses spent worrying about the future!
Humans have ‘tolerance’ for both good and bad things. However, we often underestimate our ‘tolerance’ for bad things. So, we set up a kind of ‘safety net’ to prepare for future misfortunes. For example, when buying a computer, worried it might break down, we pay extra to extend the warranty period. But remember this: even if the thing we worry about actually happens, it doesn’t significantly impact our happiness.
Pay first when you buy!
The “buy now, pay later” consumption pattern is trending lately. But this approach robs us of the joy that comes from patience. If you pay upfront and don’t receive the item immediately, you gain an extra sense of happiness while waiting for it to arrive. In fact, the happiness gained from waiting often surpasses the immediate joy of receiving the item.
Avoid excessive comparison!
Many people constantly compare multiple products when making a purchase. However, excessive comparison can cause you to miss what truly matters and focus on less important details. Furthermore, your expectations during comparison may differ from your actual experience after purchasing and using the item.
Follow trends!
Modern society emphasizes ‘differentiation’. Yet, following trends is often the most stable approach. One study revealed that the best way to predict whether you’ll like an item is to check others’ satisfaction levels. This makes customer reviews on online shopping sites highly valuable references. These reviews can also provide insights you might not have considered.
Conclusion
So, we now know that money can indeed buy happiness, and that consumption habits are key. While we can’t spend infinitely or buy infinite happiness, we can maximize our happiness with limited funds through wise spending.
