Much has been said and written about whether money makes people happy, and the conclusions offered can differ radically, depending on which psychologists, economists, or commentators we listen to. Indeed, the data are confusing and contradictory, but I believe that I can offer some reasoned, data-based conclusions.
1. Income and happiness are indeed significantly correlated, although the relationship isn’t super strong.
In other words, it’s true that the higher we are on the economic ladder, the happier we report ourselves to be. In many ways, this finding is not at all surprising, given that having money not only gives us opportunities to acquire conveniences and luxuries, but affords us greater status and respect, more leisure time and fulfilling work, access to superior health care and nutrition, and greater security, autonomy, and control. Wealthier people lead healthier lives, have the wherewithal to spend time with people they like, live in safer neighborhoods and less crowded conditions, and enjoy a critical buffer when faced with adversities like illness, disability, or divorce. Indeed, it’s a wonder that the correlation between money and individual happiness isn’t stronger than it is.
Two important caveats are in order, however. First, the relationship between happiness and money only holds for a certain kind of happiness. When people are asked to consider how happy or satisfied they are in general, those with more money report being happier and more satisfied. But when people are asked how happy they are moment-to-moment in their daily lives — e.g., “How joyful, stressed, angry, affectionate, and sad were you yesterday?” — then those with more money are no more likely to have experienced happy feelings.2 This pattern of results suggests that wealth makes us happy when we are thinking about our lives — “Am I happy overall? Well, I’m making a good living, so I must be” — but money has a much smaller impact on our feelings as we actually live our lives (“Am I happy today?”).
The second caveat, which may be even more important, is that when psychologists, sociologists, and economists discuss the relationship between money and happiness, they invariably assume that money is the causal factor. But, of course, the causal direction could (and undoubtedly does) go both ways. That is, money buys happiness, but happiness also buys money. Indeed, several studies have suggested that happier people are relatively more proficient or gifted at earning more.
2. The link between money and happiness is a great deal stronger for poorer people than richer ones.