Money and Happiness: What Science Knows About the Wealth Threshold

The Famous Kahneman and Deaton Study: $75,000 a Year

In 2010, the Proceedings of the National Academy of Sciences published a study that instantly circled the globe. Nobel Prize-winning economist Daniel Kahneman and economist Angus Deaton (who would later also win the Nobel Prize) analyzed data from 450,000 Americans and concluded: emotional wellbeing — daily mood, joy, anxiety, sadness — does rise with income, but only up to a point. That point turned out to be $75,000 in annual income. Beyond that threshold, additional money had virtually no effect on emotional wellbeing.

The study instantly became self-justification for wealthy people («money really doesn't buy happiness») and consolation for everyone else («why strive for more if happiness can't be bought»). But both readings were oversimplifications.

Kahneman and Deaton distinguished two components of happiness. The first: «emotional wellbeing» — what you feel right now, your moment-to-moment mood, joy, and calm. The second: «life evaluation» — how you assess your life overall when you reflect on it. Here's the paradox: life evaluation continued rising with income even beyond $75,000. Wealthier people didn't feel happier in the moment, but they rated their lives as more successful.

Context matters: $75,000 in 2010 in the US was roughly the median income — enough to cover basic needs without chronic financial stress. The study's conclusion wasn't «wealth is unnecessary» but rather «freedom from financial stress liberates emotional resources for happiness».

The 2021 Update: A Nonlinear Relationship According to Killingsworth

In 2021, University of Pennsylvania researcher Matthew Killingsworth published work that challenged Kahneman's findings. Using a real-time wellbeing tracking app (participants received notifications at random moments throughout the day and reported on their current emotional state), he gathered data from 33,000 American adults.

His finding was surprising: unlike the 2010 data, emotional wellbeing continued to rise with income even beyond $75,000 — and showed no signs of plateauing up to the highest incomes in the sample (over $500,000 per year). This directly contradicted Kahneman's conclusions.

The gap is explained by methodology. Kahneman and Deaton asked people to retrospectively assess the previous day. Killingsworth measured states in real time. As it turned out, when we think about a past day, we tend to recall a few vivid episodes rather than accurately assessing the overall emotional tone. This is the «peak-end rule» — we remember the peak and the ending, not the average.

In 2023, Kahneman and Killingsworth collaborated on a joint analysis. The result reconciled both positions: in general, wellbeing continues to rise with income, but for people with high levels of unhappiness (chronically unsatisfied), additional income does provide diminishing returns above a certain threshold. In other words: money helps happy people become happier, but it doesn't solve the deep problems of unhappy people.

Hedonic Adaptation: Why «More» Doesn't Work

The most intriguing discovery in the psychology of happiness is the phenomenon of hedonic adaptation, sometimes called the «hedonic treadmill». The concept is simple: people adapt to any changes in their lives — both negative and positive — and return to their baseline level of emotional tone.

Brickman and Campbell's classic 1978 study compared happiness levels of lottery winners and people who had suffered spinal cord injuries. A year later, both groups had returned to approximately the same happiness level they had before the event. This astonished the researchers: neither winning a million dollars nor losing the ability to walk changed baseline happiness levels over the long term.

Hedonic adaptation explains why a salary raise brings joy for only a few months before the new income level feels normal. Why a new car, new apartment, or new phone quickly stops generating pleasure. And why people keep chasing «just a little more» money, unaware that the finish line keeps moving.

Elizabeth Dunn from the University of British Columbia, author of «Happy Money», found that the type of spending affects adaptation speed. Buying things adapts quickly — we get used to them, they stop providing novelty. Buying experiences — travel, concerts, dinners with friends — adapts more slowly, because memories of events don't age the same way objects do.

The Karma of Financial Expectations

This brings us to the karmic dimension of money. In a psychological sense, karma is the stable patterns of thinking and behavior that determine the quality of our lives. Financial karma isn't the amount in your bank account — it's your relationship to money: the beliefs you carry, the fears that drive you, the expectations that disappoint you.

Researcher Tim Kasser from Knox College studied the relationship between materialistic values and subjective wellbeing for over 25 years. His conclusion: people for whom money and material success are primary life goals are on average less happy than those oriented toward relationships, personal growth, and contribution to others — even at the same income level.

It's not about money itself, but what it symbolizes. For one person, money means security: save enough, and anxiety will disappear. The anxiety doesn't disappear. For another, money means status: earn more than the neighbors, and respect will follow. Respect that must be purchased isn't real respect. Financial karma grows heavy when money becomes a substitute for what we actually lack: confidence, acceptance, meaning.

What Actually Buys Happiness: Experience vs. Things

Dunn, Gilbert, and Wilson in a 2011 study in Science articulated several principles of «happy spending»:

First: spend on experiences, not things. Experience — travel, concerts, courses, dinners with friends — delivers happiness three times: in anticipation, in the moment, and in memory. Things deliver it only once.

Second: spend on others. Elizabeth Dunn found that people who spent $5 on a gift for another person felt happier at the end of the day than those who spent $5 on themselves. Prosocial spending activates the same reward circuits in the brain as receiving money.

Third: buy time. Spending on things that free up your time (housecleaners, grocery delivery, a cab instead of sitting in traffic) improves wellbeing more than material purchases of the same price. Time is the only non-renewable resource.

Fourth: anticipation. A modest pleasure that can be anticipated for a long time delivers more total happiness than a large pleasure experienced without anticipation. Planning a vacation three months in advance is part of the enjoyment of it.

From a karma perspective, money is a tool. What matters isn't how much you have, but how you use it and what it means to you. Want to understand your financial patterns in the context of karma? Take the karma test at karm.top: the «Money» category includes situations that reveal your actual values in financial decisions.