Researchers have long sought to answer the question of whether having more money leads to greater happiness. In a frequently cited study from 2010 , Daniel Kahneman and Angus Deaton found that while overall life evaluation was positively correlated with income as individuals' incomes exceeded $120,000, day-to-day happiness rose up to about $75,000, but failed to increase as income rose from there. This finding led to many headlines questioning the value of earning more money for the happiness an individual feels in their daily life.
But in 2021, researcher Matthew Killingsworth took a new look at this question using a different data source (that allowed for more timely and specific responses from those surveyed) and found that there is no income plateau for day-to-day happiness. Taking this research a step further, Killingsworth in a new paper explores the relationship between wealth and life satisfaction as well as whether the highest levels of income are associated with increased happiness. He finds the upward trajectory of life satisfaction continues in both cases, with no plateau occurring for those with significant wealth or income (notably, he finds that higher wealth is associated with greater happiness than higher income alone). Further, he finds that the difference in life satisfaction between high- and middle-income individuals is significantly greater than that between middle- and low-income earners, suggesting that there could actually be increasing benefits to having greater wealth.
Importantly, this research comes with a range of caveats. First, these links are not necessarily causal, suggesting that other factors could be driving happiness in wealthier and higher-income individuals. In addition, this study looks at the question of life satisfaction and not day-to-day happiness. For instance, in his 2021 study, Killingsworth found that 'time poverty' (i.e., not having enough time to get done what an individual wants to accomplish) is a small but significantly negative mediator of the association between income and day-to-day happiness . In addition, a subsequent collaboration with Kahneman found that while individuals who are broadly happy did not see a plateau in their happiness as income rose, unhappy individuals did experience this plateau (though unhappy low-income individuals saw significant happiness gains when their income increased), suggesting that if an already high-income individual is unhappy with their current course in life, earning more money might not actually make them happier.
Altogether, this research suggests that while increased income can be a contributor to happiness, even at high-income levels, it is not the only factor that drives an individual's happiness. These findings largely reflect findings from Kitces Research on Advisor Wellbeing that while income does show some ability to influence wellbeing, its explanatory power might be related to its relationship to other key drivers (including autonomy and years of experience), suggesting it might not be the primary factor contributing to advisors' happiness.
The above originally appeared in ‘Weekend Reading for Financial Planners’ on Kitces.com July 19, 2024, and is reprinted here with permission.
About the author: Adam Van Deusen, CFP
Adam is a Financial Planning Nerd at Kitces.com . He previously worked at a financial planning firm in Bethesda, Maryland, and as a journalist covering the banking and insurance industries. Outside of work, he serves as a volunteer financial planner and class instructor for local and national non-profits.
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