Most probably know the adage “money can’t buy happiness.” While some truth may lie in the sentiment, my experience has shown that the relationship between money and happiness is far more nuanced. I’ve seen examples where money didn’t make people happy (or even magnified unhappiness), but I’ve also seen plenty of cases where it clearly contributed to greater satisfaction. Interestingly, many of these cases aren’t about wealth in the traditional sense. Instead, they involve people who have reached a level of financial freedom — not by focusing on money itself, but by pursuing other passions that led to financial success as a byproduct.
This observation aligns with recent findings in consumer science, which show that higher income levels often correlate with greater life satisfaction. All of this has led me to wonder: Is it time to rethink? Perhaps the issue isn’t that money can’t buy happiness but that most of us don’t know how to use it in ways that foster happiness.
Background
I’ve been informally reflecting on the connection between money and happiness for years. But recently, two events pushed me to dive deeper. First, the Bluestem team has been questioning the way we measure progress in financial planning. It’s standard practice to report on changes in net worth or investment growth, but if money is just a tool to achieve something greater, are these really the right benchmarks? As management guru Peter Drucker famously said, “What gets measured, gets managed.” Shouldn’t we also measure, and manage, the things that truly lead to happiness?
Second, a colleague in Financial Planning at University of Illinois invited me to expand some curriculum I was working on. Work initially focused on values turned into a broader exploration of money and wellness. That collaboration eventually became a class called Money and Happiness, where we’ve been studying teachings on happiness — from centuries-old philosophical and religious ideas to modern insights from consumer science and psychology.
There’s still so much to learn, but I wanted to share what I’ve discovered so far through this three-part blog series:
In Part I, we’ll explore what happiness really means, what modern science says about how money can and can’t help, and whether happiness truly plateaus at a certain income level.
Part II will focus on key factors that drive happiness, like relationships and purpose, and how rising wealth doesn’t always lead to rising happiness.
Finally, in Part III, we’ll come full circle to financial planning, discussing how to use money intentionally — whether through spending, saving, or giving — to align your finances with what matters most to you.
What is Happiness?
Before we dive deeper into the connection between money and happiness, it’s worth exploring what we really mean by “happiness.” Is it a fleeting feeling, or is it something more enduring? Understanding this distinction can help us frame how money might influence happiness, or fail to do so.
In their book The Good Life, Robert Waldinger and Marc Schultz offer two perspectives that are often discussed in the fields of psychology and philosophy: hedonia and eudaimonia.
Hedonia refers to pleasure and enjoyment. Think about the excitement of cheering on your favorite team, the satisfaction of a delicious meal, or the relaxation of a sunny afternoon at the beach. These moments are important and contribute to our sense of well-being, but they’re fleeting by nature.
On the other hand, eudaimonia is about living a life of meaning and purpose. It’s a deeper, more enduring form of happiness that often involves growth, connection, and contribution. Ironically, achieving eudaimonia may not always feel “pleasurable” in the moment. Take parenting, for example. Having two young children myself, I find parenting is one of the most difficult activities I engage in. It also limits the amount of discretionary time I can spend on other activities I enjoy. On the other hand, it is deeply rewarding and worth the moments of challenge and frustration.
This distinction is critical because when we talk about money and happiness, we need to consider both forms. Money might help us buy hedonic pleasures, but can it help us build the meaningful life that eudaimonia represents? This question has been the subject of considerable scientific inquiry, sparking debates and shifting perspectives.
Scientists Clash
One of the most widely cited studies on the relationship between money and happiness comes from a 2010 paper by Daniel Kahneman and Angus Deaton. The researchers concluded:
“Lack of money brings both emotional misery and low life evaluation... Beyond ∼$75,000 in the contemporary United States, however, higher income is neither the road to experienced happiness nor the road to the relief of unhappiness or stress.”
Kahneman, a Nobel laureate and a founder of the field of behavioral economics, is a renowned figure in both academic and popular culture. His book Thinking, Fast and Slow became a bestseller and brought complex psychological research to a mainstream audience. In short, Kahneman is a bit of a rockstar, so his findings carried significant weight and were widely discussed.
However, as often happens with science in the media, the study’s nuanced findings were boiled down into a simple headline: Happiness peaks at $75,000. Adjusted for inflation, that would be roughly $100,000 today. This interpretation suggested that earning beyond a certain income threshold wouldn’t make you any happier — a claim that, while attention-grabbing, oversimplified the actual conclusions of the study.
What Kahneman and Deaton’s research truly showed was this:
Emotional well-being (how you feel day-to-day) improves with income but plateaus around $75,000.
Life evaluation (your overall satisfaction with your life) continues to increase with income, even beyond that threshold.
In 2021, a newer study by Matthew Killingsworth of the Wharton School appeared to contradict Kahneman and Deaton’s findings. Using real-time data collected through smartphone notifications, Killingsworth found that happiness, including emotional well-being, continues to rise with income, with no clear plateau.
This apparent conflict sparked debate. Was the original study wrong? Or was there more to the story?
To address the discrepancies, Killingsworth and Kahneman teamed up for an adversarial examination of their data. Their findings clarified the situation and revealed that both studies were correct, but they were looking at different aspects of happiness. Here’s what they discovered:
For people in the lowest tiers of happiness, additional income improves emotional well-being up to about $75,000. Beyond that, more money doesn’t significantly reduce stress or unhappiness.
For people who are already happier overall, emotional well-being and life satisfaction do continue to rise with income, even at higher levels.
The key takeaway? Money’s impact on happiness depends on your starting point. If you’re deeply unhappy, more income may alleviate financial stress but won’t necessarily fix underlying dissatisfaction. On the other hand, if you’re already relatively happy, higher income can lead to further improvements in both emotional well-being and life evaluation.
Perhaps most intriguing is what this suggests about the role of money: happier people may simply be better at using it to create fulfilling and meaningful lives. While income can open doors, it’s how you leverage those opportunities that makes the difference.
Stay Tuned for Part II
As we’ve seen, the relationship between money and happiness is nuanced, influenced by both individual circumstances and how money is used. While income alone may not guarantee happiness, it can be a powerful tool for improving well-being when deployed thoughtfully. In the next two segments, we’ll dive deeper into this idea — exploring the factors that truly drive happiness, like relationships, purpose, and meaning, and how we can align our financial choices with these drivers to maximize fulfillment. By understanding and applying these principles, we can begin to see money not as an end in itself, but as a means to build the rich, meaningful lives we aspire to lead.
References
Kahneman, D., & Deaton, A. (2010). High income improves evaluation of life but not emotional well-being. Psychological and Cognitive Sciences, 16489-16493.
Killingsworth, M. A. (2021). Experienced well-being rises with income, even above $75,000 per year. Psychological and Cognitive Sciences.
Killingsworth, M. A., Kahneman, D., & Mellers, B. (2022). Income and emotional well-being: A conflict resolved. Psychological and Cognitive Sciences.
Schulz, M. S., & Waldinger, R. J. (2023). The Good Life: Lessons from the World's Longest Scientific Study of Happiness. Simon & Schuster.