Money buys happiness, even if you’re already rich

A big raise provides significant boosts in happiness even at household incomes of $500,000, according to a new research report.

A wealth of research has long shown that more money makes a big difference to people with low pay, moving them from insecurity to stability. Above that level, the effect is often assumed to be much smaller.

But according to a paper by Matt Killingsworth, a senior fellow at the University of Pennsylvania’s Wharton School, the bonuses and leaps in income high earners reap are so large that they keep adding to well-being in the same way that smaller pay bumps do at lower tiers of earnings.

“I think of this as a ladder across society. The rungs are separated by more and more dollars, but exactly the same amount of happiness,” said Killingsworth, who published his report on his Happiness Science website.

An academic paper in 2010 popularized $75,000 as the salary threshold beyond which earning more money didn’t make people any happier. More recent research indicates that there is no such plateau.

Killingsworth and other researchers stress that many things influence human happiness, including your relationships, your job and the country you live in.

“No single factor, including money, dominates the equation,” Killingsworth said.

Previous studies on money and happiness have consistently demonstrated two things: that richer people are happier, and that it takes progressively more money to keep generating a well-being boost of a given size.

Killingsworth says that many people draw the wrong conclusion from that latter finding. They assume that money makes the biggest difference on Americans’ happiness at lower levels of income.

His paper suggests this assumption is wrong. That is because earnings surge exponentially across the income distribution, offsetting money’s diminishing returns on happiness even at the high end.

The lowest-earning 20% of U.S. households on average brought in about $23,000 before taxes and the middle 20% earned about $87,000 in 2021, according to the latest data from the Congressional Budget Office. The top 20% averaged roughly $418,000, with the very highest earners making significantly more than that.

“It could be entirely reasonable for an individual to continue aspiring to climb one more rung in the income ladder” to pursue happiness, Killingsworth writes in his paper.

Even Americans earning a lot of money wish they could do just that. Last year, survey respondents with incomes of $200,000 or more said that the median income they would need to be happy and less stressed was $350,000, according to data from the financial-services company Empower.

More money doesn’t guarantee more happiness. The side effects vary. Some who receive big raises later report big letdowns. Others who voluntarily take a pay cut say they are glad they did.