Does More Money Make You Happier?
Answering the Age-Old Question About Financial Success and Peace of MindKathy Longo, CFP®, CAP®, CDFA Wednesday, 21 September 2022
We’ve all heard the age-old adage, “Money can’t buy happiness,” but how much truth does that statement really hold? Is it accurate, or does more money make you happier?
When we typically think about a wealthy lifestyle we focus on the material goods that money can buy, like fancy clothes or lavish vacations. But, what about the unseen things that money can provide, like financial security? Having an influx of cash can be beneficial in multiple ways, and it turns out a strong financial foundation can go a long way in contributing to day-to-day happiness and peace of mind.
Looking at the Research
The study of how money and happiness correlate isn’t new. In fact, researchers have been studying the relationship between the two for a while now. In 2010, psychologist Daniel Kahneman and economist Angus Deaton, two Nobel prize winners, published a study that looked to determine if money had any impact on two main aspects of people’s lives. First, they looked to see if money can influence the everyday quality of someone’s life. That is if it influences joy, stress, anger, sadness – all the things that make life pleasant or unpleasant. Second, they looked at whether money affects overall life evaluation - what people think about when they reflect on their lives.
This groundbreaking study found that people with more money reported feeling better about their lives overall. It also showed that emotional well-being only rose with income up to a salary of $75,000. (With inflation, that’s roughly equivalent to a $90,000 salary today.) So, does more money make you happier? In short, yes, it can. However, it’s a bit more nuanced than that and there are limitations to its impact.
What Can Money Buy Aside from Material Goods?
We may not be able to buy happiness through material goods – even if it feels like it sometimes, it’s never long-lasting. However, money can provide a sense of peace and control over an often-unpredictable life, and this can heavily contribute to both our satisfaction and happiness. Having a strong financial foundation that you can lean on when dealing with life nuisances – such as paying off that annoying parking ticket or footing an expensive hospital bill – can make all the difference.
So, what can money buy, if not happiness? Rather than focusing on whether or not money can buy happiness, it may be more productive to focus on the sorts of stresses and worries that money can free us from.
To answer this question, Jon Jachimowicz, a professor at Harvard Business School, conducted a series of experiments that aimed to test the relationship between money and happiness. The results of his study showed two compelling things:
1. Money buys less stress
In one of his studies, Jachimowicz had 522 participants keep a diary for 30 days. In it, they were asked to keep track of their emotional responses to the things that happened throughout their day. Annual income levels among participants ranged from less than $10,00 to more than $150,000. By the end of the study, Jachimowicz found that there was not a significant difference in how often participants experienced distressing events. However, those with lower incomes experienced more intense negative emotions when dealing with distressing events.
2. Money buys more control
The same study by Jachimowicz found that those with higher reported incomes showed higher rates of feeling in control over any negative events that they faced throughout their lives – and that sense of control significantly reduced their levels of stress. Those who have more money seemed to feel that they had more agency to deal with any challenges that arose. This finding may seem like simple common sense, but it’s hard to validate in words how much the small stresses of life can compound over time for those who don’t have enough money to navigate life’s day-to-day challenges. This is especially true when it comes to our personal relationships. For those who are struggling financially, and who may have to turn to friends and family for financial support, they must also struggle with the various emotions that come with being dependent on others and the risk they run of burdening their loved ones and straining relationships.
Money May Not Buy Happiness, but it Can Buy Empowerment
There’s an overarching theme of individualism that runs deep in America. People who are poor or who are struggling with their finances are often looked at as the ones to blame for their financial situations, even if there are outside circumstances at play that are responsible for their reality. Collectively, Americans pride themselves on being self-sufficient and independent, and for those who have financial security, those feelings are strong.
SEE ALSO: Building Your Financial Confidence
However, having a financial safety net and cash reserves on hand isn’t easy for everyone to achieve, regardless of how much they value independence. For some, financial independence may seem nearly impossible to achieve, while for others it might not be something they even have to think about because they’re born with financial stability.
While there is plenty that can be said about the various systems responsible for this difference in realities, it’s clear that having financial stability goes hand-in-hand with feeling empowered and confident to handle whatever life throws at you. On the other hand, financial scarcity seems to have the very opposite effect, instilling a sense of hopelessness and increasing anxiety in those who are struggling.
Are Your Finances Empowering You?
So, does more money make you happier? It seems that what we should really be asking is, “To what extent do I feel capable of handling any problems that life throws my way?”
If you’re lacking a sense of financial security, especially in a world that can feel so volatile at times, know that you’re not alone. Sometimes, gaining greater clarity on your finances and putting a plan in place to serve you now and into the future is the best way to feel more financially independent, empowered, and happier, too.
At Flourish Wealth Management, we believe that financial planning is about so much more than just money. It’s a reflection of what you value most and it’s a path toward feeling fulfilled in your life. Our team is committed to focusing on what is most important as we align the critical components of personal and financial wealth so that our clients can enjoy a greater sense of confidence in their ability to achieve their highest aspirations. If you’d like to discuss strategies you can use to gain more financial security and empowerment, please contact us today. We look forward to hearing from you!
About the Author
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.