Does Money Make You Happy?

These are the kinds of questions that as individuals and organisations we have to answer. As ever, at The Happiness Index, we believe in going back to science. There have been lots of studies which look at the impact of money on happiness, so it’s easy to find some answers to our questions. 

Does Money Make You Happier?

The short answer is: Yes.

Of course, as ever there’s a bit more to it than that. So let’s dive further into the thorny questions around money and happiness.

Will Earning a Great Salary Make me Happier?

Of course, your salary has a big impact on your quality of life. It’s going to impact everything from the kinds of food you eat, to where you live and the car you drive. However, these improvements will only make you happier to a point.

Wellbeing expert Gethin Nadin tells us that “Money contributes to happiness when it helps us make basic needs but the research tells us that above a certain level more money doesn’t actually yield more happiness.” The research that he refers to here is a 2010 study out of Princeton. The data suggests that happiness increased with salary until participants earned $75,000 per annum. Beyond this point, the correlation between salary and happiness decreased.

Money contributes to happiness when it helps us make basic needs but the research tells us that above a certain level more money doesn’t actually yield more happiness.

- Gethin Nadin, Bestselling HR Author & Top Global Employee Experience Influencer 2019 & 2020

Not only did earning more money make participants happier, but it also protected them from things which might make them unhappier. For example, participants going through a divorce who earned less became unhappier than those earning more.

It’s interesting to note, however, that the amount of money people think they need to earn to be happy is very different from what the Princeton study shows. Sonja Lyubomirsky, an important happiness researcher at the University of California, completed a study into just this. She found that people making $30,000 thought they’d need to increase their annual salary to $50,000 to be happy. But, those earning $100,000 per year estimated a yearly salary of $250,000 would make them happy. In short, people always think they need a little more money to be happy.

Will Being a Multimillionaire Make Me Happier?

The studies discussed above only look at income which sits within the bounds of average earners. Many people want to exceed this and earn millions, living a lavish footballer lifestyle. Can you blame them? But will this make them happier? Let’s look at other studies to examine these questions in more detail.

A 2017 study looked at the happiness of multimillionaires to see if they were happy. This study looked at 4,000 millionaires in the US and calculated satisfaction with lifestyle scores for these individuals. The study found that here, as with us mere mortals, there is a link between money and happiness. Indeed the research by Grant Donnelly et al, shows that there isn’t much difference between the happiness of multimillionaires until we get to those worth over $10 million. That said, even within this, these super-rich decamillionaires aren’t significantly happier than regular millionaires. Donnelly describes the difference as “modest”.

So it seems even multimillionaires aren’t significantly happier than those working with regular amounts of money. But what if we look at how these people came to be rich?

Will Inheriting a Fortune Make Me Happier?

By now, we’ve probably all received an email from someone claiming to be a Nigerian prince, telling us that we’ve inherited a fortune. Before hitting the spam button, it’s often tempting to imagine what you would do with your newfound wealth. Unfortunately, it seems that those who inherit fortunes aren’t actually that much happier at all.

The same 2017 study that we looked at before also found that those who inherited their fortune were less happy than those who had earned their millionaire status. So perhaps we should be grateful that our long lost Nigerian uncle’s money is unlikely to reach our bank accounts after all.

Will Winning The Lottery Make Me Happier?

In the absence of rich uncles, long lost or otherwise, the other get-rich-quick dream is winning the lottery. Luckily for us, there have been loads of studies into lottery winners, including a bunch about whether they’re happy or not. So will winning the lottery make us as happy as we think it will?

A 2007 study showed that those winning $200,000 experienced greater stress in the year that they won, but after two years were more likely to be happier than those who hadn’t won any money at all. In a 2018 literature review, Donnelly found that moderately sized winnings may increase happiness. Unfortunately, the impact isn’t very big, certainly not as big as we might think. Those winning the larger prizes showed no increase in happiness.

As with the millionaire’s example, it’s not just about how much money you have, but also how you come by it.

Will Spending Money Make Me Happier?

Once you have your money, does how you spend it affect how happy you are? The short answer here is also, yes. But as ever it’s a bit more complicated than that. It really depends on what you’re spending your money on.

A 2014 study by Thomas Gilovich showed that spending money on experiences is the best way to spend money to bring happiness. Another way to spend money to bring you happiness is to spend money on other people – Elizabeth Dunn has completed studies into what she calls “prosocial spending” and has shown that spending as little as $5 on others can bring more happiness than spending the same amount on yourself.

My favourite way to spend money to bring happiness is to spend money on time. For example, paying others to do jobs we don’t enjoy around the house, spending money on equipment that makes jobs easier or quicker, like a dishwasher, or even working less because we can afford to can all bring us happiness. Particularly when this money is reinvested into things which bring us joy like hobbies, spending time with loved ones, or films or music.

Compared to the ways of spending money already outlined above, buying things actually is the least efficient way of investing money into our happiness. However, there are ways to ensure that our material purchases are bringing us happiness. We can buy several smaller treats, spend time considering exactly what we want to buy, and also continue to think about the benefit that the item brings us in our day to day life even after we purchase it.

Will Paying My Team More Make Them Happier?

Of course, as you’ve seen above, there’s no simple answer to this question. There’s no real proof that raising salaries automatically makes people happier. However, paying people well is obviously the right thing to do.

Morally it makes sense to pay your staff what they’re worth, it also ensures they feel valued – which will definitely impact their performance. It also makes perfect business sense too. A 2020 study showed that worrying about money caused more stress than concerns about relationships or work itself. The study calculated that, on average, an employee loses about 1.5 days of work a year due to money-related stress. Across your whole team, this is going to add up. From a business perspective, it makes perfect sense to try to mitigate the financial stress your team is under and help them achieve financial wellbeing. This will impact employee engagement and happiness.

On average employees lose 1.5 days a year to money-related stress. This is having an impact on your bottom line.

Gethin Nadin, Bestselling HR Author & Top Global Employee Experience Influencer 2019 & 20

Gethin Nadin argues that employers are in a unique position to have a direct impact on the financial and therefore mental wellbeing of their staff. This is something that organisations should take seriously. At the end of the day, absenteeism is having a direct impact on your bottom line.

Paying your team more also makes sense from a neuroscientific standpoint. In particular we see increasing salary as something that can support the key neuroscience themes of safety and acknowledgement. 

As we’ve seen, ensuring that people can pay their bills can reduce stress, this is because it means that your team will feel more safe and secure in their role. It will also encourage them to build a healthier work-life balance as they will feel less worried about the stability of their role, and so more able to find a healthy balance. 

Being paid what they’re worth will also help your team feel that they are being given the recognition they need. Although it’s easy to think of recognition as being something more associated with praise and relationships, in actual fact, actions are also a very important part of getting Acknowledgement right. It’s a tangible way your team knows that you value them every month. 

Will Paying my Team More Increase Engagement? 

Again, there’s no direct correlation between employee engagement and pay. 

However, personal growth is an important neuroscience theme when it comes to engagement, and salary can definitely feed into this. For many people, being given pay rises and working towards promotion is an important indicator of their development and progression within an organisation.

Although it’s far from the only way to determine growth, and it might not be the way that everyone approaches their development, it’s still important to bear in mind when considering how engaged your team is. Creating defined goals, targets and learning plans is obviously where we should start when supporting our team’s personal growth. But for many individuals this might seem meaningless unless it can be backed up by promotions and corresponding raises.