Which Happiness Does Money Buy?

There’s always debate about whether or not money can buy happiness. The problem may be we’re not clear enough on what we mean by “happiness.”

It turns out there are different types of happiness. How can you decide if you’re happy with your life? Is it what you’re feeling right now, or is it a general sense of how things are?

Experienced and Remembered

Daniel Kahneman sees the two types of happiness, and thinks it’s important to make a distinction when we talk about happiness.

  1. Experienced happiness is a sense of well-being in the present
  2. Remembered happiness is how happy we think we’ve been in life

The two can influence each other, but they really are different. For a better explanation, see Kahneman’s TED talk: The riddle of experience vs. memory. Kahneman is an entertaining speaker who won the Nobel Prize in Economics in 2002.

Does Money Buy Happiness?

It depends. You’ve probably heard that money does not buy happiness above a certain level. The number Kahneman mentions in the TED talk is $60,000 per year of income in the United States of America, which is about what other studies find.

Above that income level your happiness level may increase, but at a decreasing rate. In other words, earning $120,000 per year does not make you twice as happy as if you earned $60,000; it’s nothing to sneeze at but it just makes things a little better.

Kahneman emphasizes that the increase in happiness is surprisingly flat above $60,000. Also, while money does not buy happiness for your experienced self, a lack of money can make things unpleasant.

What about remembered happiness? With higher incomes, remembered happiness increases more dramatically. You can look back on luxuries and experiences that “should” have made you happy, and decide that you actually were.

Which type of happiness is more important to you: experienced or remembered?