Can Money Make You Happy? This is the Answer According to a Nobel Prize Winner

Money is an essential element in our lives, and most people believe that having more money will lead to greater happiness. However, this assumption is debatable. The relationship between money and happiness has been extensively researched, and the results are mixed. Some studies suggest that money does indeed make people happy, while others argue that money can only contribute to happiness up to a certain point. In this article, we will explore the answer to this question from the perspective of a Nobel Prize winner in economics.

In 2002, Nobel Prize winner in economics Daniel Kahneman and his colleagues conducted a study to investigate the relationship between money and happiness. They concluded that while money does have some impact on happiness, its effect is limited. People who are struggling financially are likely to experience a significant increase in happiness when they receive more money. However, beyond a certain threshold, the relationship between money and happiness becomes weaker, and money has little or no effect on overall life satisfaction.

Can Money Make You Happy?

Kahneman’s study was groundbreaking because it challenged the assumption that more money always leads to greater happiness. The study involved over 450,000 participants from the United States and Europe, and the results showed that money has a diminishing effect on happiness beyond a certain point. According to the study, the threshold for the United States was around $75,000 a year. People who earned less than $75,000 per year reported lower levels of life satisfaction than those who earned more. However, once people reached the $75,000 threshold, additional income had little impact on their overall happiness.

There are several reasons why money has a limited effect on happiness. One explanation is that people tend to adapt to their circumstances, including their income levels. This phenomenon is known as hedonic adaptation. People who receive a sudden increase in income may experience a temporary boost in happiness, but over time, they will adapt to their new financial circumstances, and their happiness levels will return to their previous baseline.

Another factor that limits the effect of money on happiness is the concept of social comparison. People tend to compare themselves to others, especially those who are in similar circumstances. This means that even if someone has a high income, they may feel unhappy if their peers earn more. In this sense, the impact of money on happiness is relative rather than absolute.

Additionally, money can have negative effects on happiness when it is the sole focus of one’s life. Pursuing wealth at the expense of other aspects of life, such as relationships, personal growth, and leisure activities, can lead to feelings of emptiness and dissatisfaction.

While money can bring happiness, its effect is limited. People who are struggling financially are likely to experience a significant increase in happiness when they receive more money. However, beyond a certain threshold, the relationship between money and happiness becomes weaker, and money has little or no effect on overall life satisfaction. The key to happiness is not to accumulate more wealth, but to focus on other aspects of life that can contribute to a sense of purpose, fulfillment, and wellbeing.

Key Points:

Money has a limited effect on happiness beyond a certain point.

People tend to adapt to their financial circumstances over time, which limits the impact of money on happiness.

Social comparison can also limit the effect of money on happiness, as people tend to compare themselves to others who are in similar circumstances.

Pursuing wealth at the expense of other aspects of life can lead to feelings of emptiness and dissatisfaction.

The key to happiness is not to accumulate more wealth, but to focus on other aspects of life that can contribute to a sense of purpose, fulfillment, and wellbeing.

References:

Kahneman, D., Diener, E., & Schwarz, N. (2002). Well-being: The foundations of hedonic psychology. New York: Russell Sage Foundation.

Diener, E., & Biswas-Diener, R. (2002). Will money increase subjective well-being? A literature review and guide to needed research. Social Indicators Research, 57(2), 119–169.

Luhmann, M., Hofmann, W., Eid, M., & Lucas, R. E. (2012). Subjective well-being and adaptation to life events: A meta-analysis. Journal of Personality and Social Psychology, 102(3), 592–615.

Keywords: money, happiness, Nobel Prize, study, life satisfaction