As Christmas approaches, many people find themselves thinking more about relationships—and about what actually makes a human being happy. This makes it a good moment to clarify the relationship between happiness and money. On the one hand, we are often told that money does not make people happy. On the other hand, we also know that wealthy people tend to be happier. So which is it?
Fortunately, we now have a substantial body of research that offers a fairly clear answer.
When people reflect on their lives as a whole and assess their overall satisfaction, wealth does matter. Individuals with higher incomes and greater assets tend to report higher life satisfaction. But the relationship is not linear. It resembles something like an inverse exponential curve. The second billion adds less satisfaction than the first; the third adds less than the second. If you already have fifty billion and want to feel noticeably more satisfied with your life, you may need another twenty.
However, when we look not at global life evaluation but at how people actually feel during the day—how much of their time they spend feeling happy, calm, angry, or frustrated—the role of wealth is dramatically smaller. A poor person is just as happy as a rich one when spending time with friends. Emotional pain caused by betrayal or disappointment hurts just as much regardless of income. Both enjoy good food equally (even if what counts as “good food” differs). And for both, pointless quarrels are a reliable source of unhappiness.
The real difference lies at the very bottom. The poorest of the poor are burdened by a cluster of frustrations that drain joy and cannot easily be avoided: no hot water, unreliable heating, unsafe neighborhoods where the risk of assault is higher. These conditions do undermine everyday happiness. But this applies only to the truly destitute. From slightly below-average income upward, the difference largely disappears.
In short, money can increase satisfaction with one’s life as a whole. But it cannot meaningfully raise day-to-day happiness.