Everything you need to know about whether money makes you happy
It’s a cliché that “you can’t buy happiness”, but at the same time, financial security is among most people’s top career priorities.1 Moreover, when people are asked what would most improve the quality of their lives, the most common answer is more money.2 What’s going on here? Who is right?
A lot of the research on this question is of remarkably low quality. But there have been some recent major studies in economics that allow us to make progress. In particular, we now finally have survey data from hundreds of thousands of people all around the world. We’ve sifted through the best studies available to figure out what’s really going on. The truth seems to lie in the middle: money does make you happy, but only a little. And this has many important implications about trade-offs you face in your life and career.
Summary of main points
- Recent surveys of hundreds of thousands of people, in over 150 countries, show that richer people report being more satisfied with their lives overall, but that the richer you become, the more money you need to increase your satisfaction further. This is because people spend money on the most important things first. Someone earning $100,000 per year is only a little more satisfied than someone earning $50,000. The best available study found that each doubling of your income correlated with a life satisfaction 0.5 points higher on a scale of 1 to 10.
- If you look at how ‘happy’ people say they are right now, the relationship is weaker. One large study found people in countries with average incomes of $32,000 were only 10% happier with their lives than those in countries with average incomes of just $2,000; another within the US could find no effect above a $40,000 income for a single person.
- Moreover, some and maybe even most of this relationship is not causal. For example, healthier people will be both happier and capable of earning more. This means the effect of gaining extra money on your happiness is weaker than the above correlations suggest. Unfortunately, how much of the above relationships arecaused by money making people happier is still not known with confidence.
- Once you get to an individual income of around $40,000, other factors, such as health, relationships and a sense of purpose, seem far more important than income. So our recommendation is not to focus on earning more than this (insofar as you want to become happy, anyway).
- However, you may gain from earning more than that if: you have dependents, you care about money more than other people, or you live in an area with an unusually high cost of living.
- Giving money to someone living on $1,000 per year in the developing world will do far more to improve their lives than giving the same amount to someone earning $25,000. The correlations above suggest that it will be about 25 times more valuable. If you want to help people, this is a major reason to focus on international poverty rather than helping the relatively poor in richer countries
- Giving some money to charity is unlikely to make you less happy, and may well make you happier.
Table of Contents
- Are richer people more satisfied with their lives?
- OK, but are richer people happier?
- What can make sense of these results?
- So would making more money make you happier?
- Are there exceptions to this general rule?
- How much does income matter relative to other factors?
- What does this mean for your career choice?
- What does this mean for having a positive impact on the world?
- If you gave money to charity, would it make you more satisfied or less?
- The bottom line
- Appendix I — But I’ve always been told we just look at relative rather than absolute income?
First of all, interesting article.
While doubling (= exponential increase) your salary might only increase your happiness with 0.5/10 (= linear increase), you should take into account that the more money one makes, the easier it becomes to make even more money. (A linear increase in work done will thus result in an exponential increase in income or assets).
These 2 phenomena seem to counteract each other. So when making this kind of decisions, this is an important factor to take into account.