You’ve heard the old adage that says that money can’t buy happiness. As with any cliche, there’s a grain of truth to it, but also some nuance.
On the on hand, if you look at the world happiness report, there’s an undeniable correlation between a country’s wealth and its ranking. 15 of the world’s 20 happiest countries are in Scandinavia, Western Europe or North America.
However, a now famous Princeton study from 2010 showed that happiness increased along with income up to $75,000 per year, but that after that, happiness plateaued. A 2018 study from Purdue university more or less confirmed these findings, stating that $95,000 was the ideal income point for “life evaluation” (ie. how someone rates their life). The Purdue study also says that that number would likely be higher for families. Over the years, there have been a number of attempts at figuring out how that number changes by geographic location, trying to index the amount by the cost of living.
However, the overall point of all these studies is the same. Increasing wealth can improve your life to a certain point. After that point more money doesn’t increase your happiness.
So, then, it would appear that if you live in the US, once you hit the magical 6-figure mark, you shouldn’t worry about earning any more money, because it won’t necessarily make you happier, right?
Well, not quite.
The issue with all of these studies is that they looked at the average level of happiness for people in a certain income bracket. By definition, there are people who are happier than the average, and there are people who are less happy than the average. The question we need to ask ourselves is what differentiates the happier high income earners from the less happy high income earners?
As it turns out, there’s a number of studies that have done just that, and while researching sources for this piece, I stumbled upon one study from 2019 that summarized three ways that one can use money to “buy” happiness. For good measure, I’m adding a fourth below (which is actually #2 in the list).
#1. Experiences over things
First off, something that Millennials appear to have figured out some time ago is that in general, spending money on experiences brings more happiness than spending money on material possessions. This is due to the hedonic treadmill. Whereas we adapt to new possessions as our new normal, we preserve experiences as memories and the effects of those can last much longer. Thus, the theory goes that by spending money on experiences rather than things, we can indeed use more money to increase our happiness.
#2. Things you love
However, to say: “To be happier, use money on experiences, not things,” is an over-simplification. This is because there are THINGS that provide just as much happiness as experiences, they just need to be the RIGHT things. Material objects purchased because of the status they confer will not provide long-term happiness. However, purchasing things that one has a strong emotional connection to, CAN result in long term happiness.
What further complicates matters is that those will vary from person to person. You might say that buying a sports car is one of the things that falls clearly into the “materialism” bucket and thus will not confer happiness. However, it all depends on your feelings TOWARDS the sports car.
Let me illustrate by telling you a story of two men. Man A went out and bought himself the most expensive car he could afford the moment he finished school and got a job. Every 4-5 years after that, he traded in that car for a newer, more expensive one, and every time he did so, he was proud to show it off.
On the flip side, Man B drove the same car from the time he was in his teens until he was in his late twenties, at which point he went through a divorce (it had nothing to do with the car). As soon as all was settled, he took whatever money he had left from his portion of the sale of the couple’s home and spent it on an expensive sports car.
Which one do you think got more happiness out of their expensive cars?
The answer is that it’s a trick question because I didn’t tell you enough about each man or his relationship with his car. For Man A, his cars were status symbols, and something to show off. After the initial bragging about his new fancy car was over, it was simply another method of transportation for the next few years until his next trade-in.
For Man B, the fancy car was a passion. He detailed it, maintained it, raced it. He couldn’t have cared less about what anyone else thought of the car. He got joy out of the thing itself.
In a scenario like that of Man B, using money to purchase an item you truly LOVE can indeed buy happiness.
While I haven’t been able to find any science to back this up, it’s a topic that’s discussed A LOT in minimalism circles, and has become especially prevalent with the popularity of Marie Kondo’s The Life Changing Magic of Tidying Up, and her notion of getting rid of things that don’t “spark joy.”
However, this approach of purchasing items that will “spark joy” won’t work for everyone, because not everyone is passionate about an item that can be purchased (for example, me). That brings us to the third way you can buy happiness.
#3. Buy your way out of things that make you unhappy
This is something that anyone can take advantage of, because everyone has things they don’t like doing. Maybe it’s cleaning the house, or doing yard work, or commuting to work.
The idea behind this method is that you use your money to reduce the amount of time you spend on the things you don’t like doing. So, if you don’t like cleaning the house, you use your money to hire a cleaning lady (or buy a Roomba, I guess). If you don’t like doing yard work, you use your money to hire someone to do your landscaping. If you hate your commute, you use your money to move closer to the office.
And if you like a simple life, and the only thing you don’t like doing is going to work, well, use the money you’ve saved up to switch jobs, even if it means taking a pay cut.
#4. Spend money on others
There is a counter-intuitive phenomenon in the study of happiness that the more one focuses on oneself, the less happy they tend to be. However, the more one focuses on others, the happier they tend to be.
Money apparently is no different, as researchers have determined that spending on others (or “pro-social spending” as it’s referred to in the literature) can have a positive impact on one’s own happiness.
None of the studies I’m aware of can explain WHY spending on others makes us happier than spending on ourselves, but if I had to guess, it probably has something to do with our evolutionary programming to advance the needs of the species.
By the way, there is a whole other side to this topic which I didn’t touch on, and that’s the amount of money you have in comparison to your peer group. But that’s a whole other note.
To summarize, after most of our needs are met, and we have a certain basic amount of creature comforts, more money doesn’t automatically mean more happiness. However, learning how and what to spend your money on, CAN improve your life.