Can money make you happy?

And if so, by how much?

I’m making a lot of changes in my life. Again. Including another move. My 16th move in 15 years. 

But with all of these changes, I’ve been thinking about happiness.

Not just my happiness, because of course, that was the starting point, but happiness as a concept. 

Happiness is something that’s drifted in and out of the periphery of my intellectual curiosity on and off for a decade now. 

During my undergraduate career, I did a multivariate regression analysis on global happiness levels, looking at a dataset of over 240,000 responses across 100+ countries. 

Back then, I used life satisfaction as a proxy for happiness, as do the World Happiness Report, Gallup, and the Oxford Press, but is there more to it than self-reported life satisfaction?

Life Satisfaction VS. Happiness

Gallup polls and various happiness studies often assess life satisfaction by asking individuals to take a broad look at their lives and evaluate their overall state. But, life satisfaction represents only one aspect of measuring happiness. Another part of this is the daily emotional state of individuals, which can range from feelings of joy, peace, and contentment to feelings of stress, sadness, and anxiety, often referred to as 'hedonic wellbeing' or 'experienced happiness'.

Psychologists Daniel Kahneman and economist Angus Deaton explored whether there's a link between this day-to-day emotional wellbeing and financial status, similar to the connection with life satisfaction.

In "The Paradox of Pursuing Happiness", Zerwas and Ford suggest that heavily valuing daily emotional wellbeing can lead to both immediate and long-term negative effects, including increased loneliness. They propose that the true essence of happiness lies in eudaimonia, or the state of flourishing that comes from living well according to one's unique situation. (Also: isn’t that a great word!?)

The consensus? Happiness can be seen as primarily comprising of two components:

• Eudaimonia: A consistent sense of contentment

• Hedonic well-being: Daily emotional variations, encompassing the range from happiness and calm to stress and despair, also known as 'hedonic well being' or 'experienced happiness'.

Eudaimonia and hedonic well-being are different elements of happiness, rather than two different ways to measure a single, unitary trait

Does money make us happy?

Sure. Intuitively, you’d think poverty and hardship make you unhappy. But does poverty cause unhappiness, or is it just correlated with it? And conversely, does having a lot of money make you happy?

If I had a dollar for everytime I’ve been told "money can't buy happiness", would I just be very rich, or very rich and very happy? 

If the wealthy, including many celebrities, can be profoundly unhappy, it raises questions both on a personal and societal level: How important is it to try and get a high salary? And for governments, when considering the well-being of their citizens, should the focus be on increasing financial prosperity, or should other factors take precedence?

To explore that, we have to look at studies that talk about both eudaimonia and hedonic wellbeing. 

Eudaimonia/Life Satisfaction

This concept essentially reflects how individuals perceive the quality of their life, taking into account their own unique circumstances.The Gallup World Poll, which is conducted in more than 160 countries, gauges life satisfaction by asking respondents in their native language to:

"Visualize a ladder with steps numbered from 0 at the bottom to 10 at the top. The top signifies the best possible life for you, and the bottom the worst. Where do you feel you currently stand on this ladder?"

This method, known as the 'Cantril ladder', often shows that individuals with higher incomes position themselves further up the ladder compared to those with lower incomes. 

The relationship between income and life satisfaction is logarithmic. In other words, just because your income doubled, it doesn’t mean your life satisfaction is going to double. It increases by a fixed amount. 

What this also means, is that even though an increase in income increases your life satisfaction, it depends on how much you’re already making. 

So say you’re making $2k a year, and you get an extra $1000 this year? Great, your life satisfaction will likely go up a LOT.

But if you’re making $100k? Not a lot. 

So, if more money is associated with greater life satisfaction, is it right to say that the wealthier tend to be happier?

Not exactly: it depends what you mean by happiness. 

Hedonic Happiness/ Day-to-day Happiness

In their 2010 study involving 1,000 U.S. residents, Kahneman and Deaton found that if you already make $75,000 USD (€69k) pre-tax, the happiness you can derive from increased income has already plateaued out.

This study was then repeated in 2021 with 33,000, with similar results. 

If you look at this data on a regular, non-log scale, another pattern emerges.

Source: Clearer Thinking’s analysis of data from Kahneman, Killingsworth and Mellers’ 2022 adversarial collaboration.

Source: Clearer Thinking’s analysis of data from Kahneman, Killingsworth and Mellers’ 2022 adversarial collaboration.

Check out the y-axis here. 

People making $15,000 annually have an average well being score of approximately 60.9 on a scale of 100. 

Meanwhile, those with an income of $400,000 reach a peak score of 65.8. 

That’s a 5-point difference between the lowest and highest earners. 

People with vastly different levels of wealth have surprisingly similar levels of emotional well-being. 

Which is honestly crazy to me. 

TL;DR

• Making more money is associated with moderately greater life satisfaction 

• Making more money is associated with a very small increase in hedonic well-being 

• And if you’re making more than $75k, well you’re probably better looking at other ways to increase your happiness

What about religion?

As an undergraduate, growing up in the Middle East, I was fascinated by the role of religion. So when the opportunity presented itself, I was curious to explore the link between religion and eudaimonia.

Generally, people with higher self-reported levels of religiosity also reported higher levels of life satisfaction. 

Unless, they came from a country where practicing religion made them a minority. 

Reflecting on that now, that makes me wonder if the benefit there isn’t religion itself, but the feeling of belonging to a community. 

This aligns with Matthew Lieberman’s findings in “Social”.

For example, he found that having one friend you see “on most days” increases happiness as much as earning an extra $100,000 per year -- and even seeing a neighbor is worth $60k.

A partner who loves you?
Another $100k.

Good physical health?
$400k. 

His research suggests that despite Elon Musk being literally tens of thousands of times richer than you, he’s not 40,000 times happier.

What does this mean for me and why am I writing about this?

Well, mostly I’m trying to justify buying more candles the absurd amount I’m about to pay for my new place. But this also represents a big mindset shift for me. And I think it took looking at the data solidified it for me.

I spent most of my 20s trying to build the most profitable business I could (while still looking out for my team and clients etc), but it also meant that I’d fallen into that money = happiness loop. 

I was working so much that I barely had time left to actually enjoy any of the money that I was making. It’s also incredibly easy for me to fall back into those old habits. 

I mean, I know it sounds silly in hindsight. Surprise, surprise, Eman. Working 16 hours a day didn’t make you happy. 

But even when I stopped working like that, there was something missing.

I typically identify as a happy, optimistic person.

I’m very rarely upset about anything for more than a day or two.

But I also tend to be someone who very much self-medicates emotional turbulence with content consumption.

I’m constantly working, reading, learning, listening to, or watching something, and I’m starting to wonder if I’ve been using that to mask my perception of my own hedonistic wellbeing.

A few weeks ago, I realised I wasn’t really happy.

And that’s where those changes I mentioned come in. (#BiasforAction?) I’m excited to experiment more with things that bring me joy. 

I’m going to try prioritising community, connection, and new experiences: I’m moving out of my little apartment and into a co-living space, I read about proximity to coffee shops being a factor for happiness, my new place is smack in the middle of 5. 

And: I’m only going to do work I genuinely enjoy. 

(Dad, if you’re reading this: Yes, I’m going to make sure I put money away for a rainy day. No, I’m not going to be financially irresponsible. )

What’s bringing me joy at the moment? 

⚖️ Balance: Honestly, this app has been a godsend. I’m usually super wired, until I get tired and disassociate. But this has been a great way to quiet my mind without pushing myself to exhaustion. They’re also free for a whole year!

🍟 The “Is that Heinz?” campaign: So fun. And as a ketchup lover, I very much approve.

📚 My friend Sania’s book reviews. Her reviews are spot on. If I ever need something to read, Sania’s my go-to for reccs.

P.S. Something I want to do more of this year is travel, here are a few pictures from my most recent trip to Edinburgh!

Edinburgh

And meet my new BFF, Mackenzie.