Can Money Really Buy Happiness?
Can money really buy happiness? On this episode of Making Cents of Money, we unwrap the science behind money and joy with Donovan Sanchez who returns to discuss his primary research interest. From hedonic adaptation to pro-social spending, learn ways to boost well-being without breaking the bank.
This conversation examines what current research reveals about income and happiness, how quickly we adapt to new purchases, and why relationships consistently emerge as the strongest predictor of long-term well-being.
You can also listen to this episode on Apple Podcasts & Spotify.
Key Discussion Points
- Defining Happiness: Psychological research distinguishes between hedonia (short-term pleasure and positive emotions) and eudaimonia (meaning, purpose, and life satisfaction). Together, these form what researchers call subjective well-being (SWB), often measured using tools such as Cantril’s Ladder.
- The Income Question: Earlier research suggested happiness plateaued around $75,000 in annual income. More recent studies—adjusted for inflation and using improved methods—show that, for most people, higher income continues to be associated with greater well-being. However, gains tend to be smaller at higher levels, and for the unhappiest 15–20% of people, additional income offers diminishing returns once basic needs are met.
- The Hedonic Treadmill: This concept explains why the excitement of a raise, a new phone, or a major purchase fades as we return to a baseline level of happiness. Research suggests we can slow this adaptation through variety (changing routines) and active appreciation (intentional gratitude).
- Spending Strategies for Joy: Drawing on the work of Dunn, Gilbert, and Wilson, three evidence-based strategies consistently improve well-being:
- Buy experiences instead of things: Experiences generate more lasting happiness and richer memories.
- Spend on others: Pro-social spending reliably produces greater happiness than spending on ourselves.
- Frequency over intensity: Many small pleasures often outperform one large, infrequent purchase.
- Satisfaction Math: Happiness researcher Arthur Brooks summarizes satisfaction as:
Satisfaction = What You Have / What You Want. While most people focus on increasing what they have, research suggests lasting contentment often comes from managing or reducing our wants. - The Ultimate ROI: Findings from the Harvard Study of Adult Development—the longest-running happiness study— show that strong relationships are the most reliable predictor of both happiness and long-term health.
Personal Action Plan: The Three Kinder Questions
To help align money decisions with personal values, Donovan walks through George Kinder’s well-known discovery exercise:
- Financial Independence: If you had all the money you needed, how would you live your life?
- The Time Constraint: If you learned you had only 5–10 years left to live—but would remain healthy until the end—what would you change?
- The Final Day: If you had just 24 hours left, what would you regret not doing? Who did you not get to be?
Analogies for Understanding
The “Wilson” Effect: Just as Tom Hanks’ character in Cast Away forms a bond with a volleyball to survive isolation, humans are biologically wired for connection. Relationships are not optional luxuries—they are a core survival mechanism and a stronger driver of happiness than income, status, or career success.
Webinar on Money & Happiness
Prior Episodes Featuring Donovan Sanchez
Sources Referenced in This Episode
- Brooks, A. C. (2022). From Strength to Strength: Finding Success, Happiness, and Deep Purpose in the Second Half of Life. Portfolio.
- Chancellor, J., & Lyubomirsky, S. (2011). Happiness and thrift: When (spending) less is (hedonically) more. Journal of Consumer Psychology, 21(2), 131–138. https://doi.org/10.1016/j.jcps.2011.02.004
- Consumer Financial Protection Bureau. (2015). Financial Well-Being: The Goal of Financial Education.
- Dunn, E. W., Gilbert, D. T., & Wilson, T. D. (2011). If money doesn't make you happy, then you probably aren't spending it right. Journal of Consumer Psychology, 21(2), 115–125. https://doi.org/10.1016/j.jcps.2011.02.002
- Helliwell, J. F., et al. (2024). World Happiness Report 2024. University of Oxford.
- Kahneman, D., & Deaton, A. (2010). High income improves evaluation of life but not emotional well-being. PNAS, 107(38), 16489–16493. https://doi.org/10.1073/pnas.1011492107
- Killingsworth, M. A., Kahneman, D., & Mellers, B. (2023). Income and emotional well-being: A conflict resolved. PNAS, 120(10). https://doi.org/10.1073/pnas.2208661120
- Waldinger, R. (2015). What Makes a Good Life? Lessons from the Longest Study on Happiness. TED Talk.
