Can money buy you happiness? New research from Nobel Prize-winning economist, Daniel Kahneman and his critic, Matthew Killingsworth, suggests that it can – unless you have other underlying reasons to be unhappy. However, NOW’s Director, Roger Higman warns against drawing too many conclusions.


“Do larger incomes make people happier?” That’s a question that has troubled economists since Richard Easterlin’s famous study in the 1970s suggested that growth in the US economy wasn’t increasing wellbeing. More recently, the Nobel Prize-winning economist, Daniel Kahneman published research suggesting that, once a certain level of wealth has been achieved, higher incomes don’t make richer people happier than those on more middling incomes.

This conclusion itself was controversial. Critics such as Matthew Killingsworth used different data to show that happiness rises steadily with income. Now, Kahnemann has teamed up with Killingsworth to reanalyse and reinterpret their data. Their conclusions were published in the Proceedings of the National Academy of Sciences in March as “Income and emotional well-being: a conflict resolved”.

The new paper suggests that both authors were right but that both made errors. Their new explanation suggests that rising income has different effects depending on how happy people are in the first place. For unhappy people (about a fifth of those surveyed), higher income was associated with reduced unhappiness up to a point beyond which further income had little effect. For the happier majority, happiness appeared to rise steadily with income – and may rise even faster as incomes rise above a certain threshold.

The biggest lie the rich ever told? That money can’t buy you happiness was the response from Arwa Mahdawi of the Guardian. “This feels like one of those studies that you can file under ‘pretty goddam obvious'” she wrote, citing data on housing affordability, pensions and the cost of childcare. “It’s funny”, she concluded, “how a lot of obscenely rich people are fixated on trying to tell everyone else that money doesn’t make you happy…. It is very convenient to pretend that money isn’t important when you’re busy trying to hoard a lot of it yourself.”

So has the conflict been resolved? Can money buy you happiness? Do larger incomes make people happier?

These questions are actually far harder to answer than this latest paper suggests.

Both Kahneman and Killingsworth’s studies looked at how levels of people’s wellbeing differ at any one time according to the level of their income. They then inferred a causal relationship whereby increased income leads to increased wellbeing. This doesn’t necessarily follow, especially as other studies, including Easterman’s, have looked directly at how levels of wellbeing change as incomes rise over time – and show conflicting results.

The fact that wealthier people are happier generally than poorer people does not necessarily imply that individuals who become richer become happier, though many do, nor that once a reasonable level of wealth has been achieved, that pursuing further wealth will make the people of a country as a whole happier.

Also, both Kahneman and Killingsworth’s studies were based on American data. The USA is one of the most unequal societies in the World, where access to healthcare and pretty much everything else depends on income. As a result, income may be more important to happiness in the US than in other countries, where there is more collective provision of health services, housing, public transport and so on.

In fact, survey data consistently shows that, although people in wealthy countries generally report being happier than people in poorer countries, the happiest countries in the world are not the richest but those like Finland, Denmark and Iceland, which provide strong social safety nets and where income is more evenly shared.

Finally, the relationship that Kahnemann and Killingsworth found is, in their own words: “weak, even if statistically robust”.  As a result, if you are a reasonably well-off American who is particularly unhappy, the data suggests it would be better to address the specific causes of your unhappiness than to try and boost your income. In fact, by their logic, boosting one’s income seems to be a particularly ineffective strategy if you are relatively well off but still unhappy.     .

So what can we conclude from this re-analysis? Can money really buy you happiness?

Having money is important in all modern societies in enabling people to meet their needs for things like housing that are important to happiness and wellbeing. Having more money can also be important for meeting social needs – for love and connection with others; for personal security and freedom; or to enable people to pursue particular passions.

However, it’s meeting the needs themselves, not the money, that leads to happiness. If these needs can be met in other ways or more cheaply, income becomes less important. That’s why we run the Share Shed, our travelling library of things, because borrowing helps us all to do what we need to do more cheaply. That’s the principle behind community fridges, which recycle unsold food for free to local communities and that’s why the Active Wellbeing Society, our friends in Birmingham, have been giving away free bicycles – so that people can get around without having to pay.

That’s why we support the We-All Alliance for an economy that focuses on wellbeing rather than growth. It’s a sad fact that, even in the US, one of the wealthiest countries in the world, many people remain unhappy desite their riches.