Does money buy happiness? Are those who earn more inherently happier? This question has long intrigued both the personal finance community and the popular press. As I’ve noted before on this Substack, I believe that happiness springs from a healthy sense of both meaning and purpose. So, does money influence either of these?
To address this, several studies have explored the relationship between income and happiness. I’ll delve into three notable ones here. The first, by Kahneman and Deaton, suggests that the benefits of increasing income level off at around $70,000 annually. The second, from Matthew Killingsworth, argues that experienced well-being continues to rise with income even beyond $75,000 per year.
And the third study? The one that might make the findings of the first two seem less relevant? I’ll keep that under wraps for now. But in the meantime, what’s wrong with the first two studies?
Kahneman and Deaton
Let’s assume, for a moment, that this influential study accurately collected and interpreted its data. I’d venture to say it may not matter as much as it seems. The Kahneman and Deaton data came from the Gallup-Healthways Well-Being Index, which began in 2008:
“The index provides an in-depth view of Americans' well-being and offers insights into their attitudes and behaviors at national, state, and community levels. It examines five interrelated elements of well-being: career (formerly known as purpose), social, financial, physical, and community.”
Their 2010 paper analyzed over 450,000 responses from a daily survey of 1,000 U.S. residents. My concerns with this data are straightforward:
The analysis covered a relatively brief period of two years.
Measuring these five elements shows correlation but not necessarily causation.
The researchers used existing data rather than starting with a hypothesis and then collecting new data.
While these aren’t fatal flaws, they do make me question the study’s reliability.
Killingsworth
The Killingsworth study involved texting participants at random times to report their current happiness, typically three times a day over a few weeks. Income was measured only once. My issues with this study are clear:
Participants were prompted to report happiness at specific times, providing a snapshot rather than a comprehensive view.
Income was assessed only once.
This is a moment-in-time analysis, highlighting correlation more than causation.
The Harvard Study of Adult Development
In contrast, the Harvard Study of Adult Development has been ongoing since 1938. Its methods are thorough and exhaustive:
Questionnaires (every two years): Participants have answered questions about their happiness, salary, and voting history.
In-person interviews: Every decade, participants are interviewed in their homes for three to four hours.
Photo, audio, and video recordings: Participants have been photographed, audiotaped, and videotaped.
Blood draws: DNA analysis has been conducted through blood samples.
Brain scans: Participants’ brains have been scanned to assess their responses to emotional stimuli.
Anthropometric measurements: Early researchers measured participants' skulls, brow bridges, and moles.
Organ function notes: Early observations included notes on participants' major organ functions.
Electroencephalograms: Brain activity was examined using EEGs.
Handwriting analysis: The handwriting of male participants was analyzed.
Starting with 268 men, the study has expanded to include 1,300 family members of the original cohort and nearly 500 inner-city Boston residents as a control group.
After eighty years of continuous, comprehensive study—including longitudinal evaluations, multiple income assessments, and extensive scientific analyses—the Harvard study has reached a compelling conclusion:
Close relationships, more than money or fame, are what sustain happiness throughout life.
While the Kahneman and Killingsworth studies offer intriguing insights, the Harvard study seems to provide a more definitive answer.
What’s your take?
Today’s Poll
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Path to Purpose Coaching
Over the last year, writing my new book The Purpose Code, I have spent a huge amount of time thinking about, writing about, and discussing purpose. I have offered one-on-one and group coaching to my mastermind group, Wealth With Purpose. These discussions stem from my real life encounters with dying hospice patients as well as the numerous interactions I have had with people after reading Taking Stock.
What I've found is that most of us who listen to the Earn & Invest Podcast struggle with three basic issues:
How do I define purpose in my life?
How do I transition to a more fulfilling career?
What is enough money look like? Enough life?
To help navigate these waters, I have decided to offer the Path to Purpose coaching program. This is one-on-one coaching with me to help you further define purpose, direction, and career. Sessions will be spread over five weeks with a goal to provide a more concrete and enjoyable path to crack the purpose code and start living your life now whether you are broke, pre financial independence, financially independent, or beyond.
https://www.earnandinvest.com/coaching
The problem with these studies is they don’t look at HOW people spend their money.
You can spend $50k in income an infinite number of ways, and probably most won’t bring happiness.
Finding the right HOW of spending does bring happiness, IMHO. E.g. buying time, health, experiences with loved ones.