Can Money Buy Happiness?
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Can Money Buy Happiness?

When it comes to money and happiness, a lot of us think the grass is greener on the richer side. We’d be happier in a bigger house with a heated pool and plenty of money left over to treat our kids, grandkids and friends. Wouldn’t we?

Some happiness experts, including psychologist Ron Siegel, say we would likely readjust to our “happiness set point” after the novelty wears off. In this sense, money can’t buy lasting happiness.

Other researchers say money can buy happiness – to an extent. One study in 2009 asked participants to report how happy they were in relation to their household income. The study, as well as past research, found that happiness tends to increase with income up to a point ($75,000 in one study, and about $90,000 in this study), but the increase is relatively small. Money makes you a little happier up to a point, but not a lot.

Participants were asked to predict how happy they thought other people feel at different income levels. Respondents were fairly accurate in predicting that higher levels of household income are not associated with higher levels of happiness at the top end of the income distribution (e.g., at $90,000 compared with $125,000). That is, both predicted and actual happiness leveled off at $90,000+.  But they greatly underestimated the happiness of people who made less money.

Bottom line: Money does matter, but not as much as many people think. What seems to matter more is what people do with their money. Here are two ways to spend it that really can bring more joy to your life – no matter your income.

1. Be charitable. Research shows that those who spend their money on others are consistently happier people. This finding held true for both the rich and the poor. And it’s not like you have to give it all away to achieve happiness: If you can see your money making a difference in other people’s lives, it will make you happy even if the amount you gave was quite small.

2. Pursue experiences instead of material items. This bit of advice has been floating around for years, but research shows that even though people know this to be true, many still believe material goods are a better use of their money. A 2014 study surveyed how participants felt before and after making a purchase. Before buying, participants said they believed that life experiences would make them happier, but that material items had more value. But after their purchases, they felt that life experiences not only made them happier, but also had higher value.

If you’re worried that “life experiences” are out of your budget, don’t stress. Life experiences can range from a hiking trip an hour away to a salsa dancing lesson nearby. As long as it’s an experience you’ll be able to bank in your memory, you’ll be glad you did it.    

There's a strong connection between our finances and our emotions--and too much money stress can harm your health. Take the Financial Stress Test to check your stress levels and learn ways to reduce it.