Can Money Buy Happiness

Hello, welcome to Investor’s Bookshelf. Today I’m going to share with you a book titled Can Money Buy Happiness?

Its author is Jonathan Clements, a well-known American financial writer. He served as the personal finance columnist for The Wall Street Journal for 27 years and later became the Director of Financial Education for Citigroup’s U.S. wealth management division. In recent years, he has published eight personal finance books, including How to Think About Money and The Little Book of Financial Happiness.

This book draws on Clements’s personal experiences, his long-term engagement with related academic research, and more than 30 years of conversations with investors, scholars, and financial professionals on Wall Street. It represents his reflections on the relationship between money and happiness. Through today’s discussion, you will discover that the link between money and happiness is far more complex than we might imagine. When deciding how to use money, we shouldn’t rely too heavily on instinctive, gut-level answers.

Part One: Can We Truly Make Wise Spending Decisions for Happiness?

In economics, there is a classic assumption that individuals make choices according to the principle of “utility maximization.” This means we are all striving to choose whatever will make us happier. But a discouraging fact is that most people, most of the time, don’t really know what will truly make them happier. For example, when feeling tired or low, many people opt for a big meal, scroll on their phones, browse social media, watch videos, or drink alcohol, hoping these activities will help them relax and feel happy.

In reality, these things don’t make us happier. At one point, a professor at the London School of Economics organized a team to study this very question. They built a massive database containing more than three million data points on happiness from over sixty thousand people, examining how forty different activities affected happiness.

They found that many activities we think will instantly lift our mood—such as playing computer or mobile games, watching TV or movies, eating snacks, or surfing the internet—only provide a brief dopamine spike. Once we stop, dopamine levels quickly drop, and our sense of happiness doesn’t noticeably improve; we may even feel more deflated. In contrast, other activities that we often underestimate—like exercising, spending time in nature, birdwatching, visiting museums, galleries, or libraries, gardening, and socializing or chatting with others—deliver happiness levels five times greater, on average, than eating, gaming, or watching videos. These activities act like long-term energy storage for happiness.

Psychologists have found similar results. Common relaxation methods like gaming, watching videos, or snacking do not provide true rest or rejuvenation. Instead, activities that ease fatigue and boost well-being are creative pursuits such as photography, painting, or creative writing. Being in nature is another excellent option. And here’s good news: if you can’t access nature directly, simply viewing beautiful nature photos, keeping green plants on your desk, or listening to natural soundscapes can produce similar effects.

These studies show that the choices we make for our own happiness, often without much thought, are not always optimal. For example, if you ask someone, “What change in your life would make you happier in the long run?” they might say, “A promotion and a raise! A bigger house! Living in a scenic place!” But here’s a counterintuitive finding: in the long term, these things don’t necessarily make us happier.

That’s because humans have a psychological tendency to quickly adjust to both good and bad circumstances. For example, when we first learn about a raise, we do feel delighted. But within a couple of weeks, that wonderful feeling fades. Once we’ve adapted to the raise and become absorbed in the routine of work, the usual frustrations return, and we start longing for the next raise.

There was even a study that surveyed nearly two thousand college students from four U.S. universities—two in the Midwest and two in California. California has a milder climate and more sunshine than the Midwest. The students believed that people living in California would be happier than those in the Midwest. Yet the survey found no difference in overall life satisfaction between the two groups.

Why is that? Because when students imagined living in these different places, they focused on the obvious contrasts between the regions. But once immersed in daily life, external factors like climate and scenery became constants—quickly adapted to and mentally set aside.

This phenomenon is known as the “hedonic adaptation effect.” Humans work hard to create better external conditions, but we adapt quickly and begin to yearn for something more, making happiness hard to sustain. Adaptation, however, also has benefits: it helps us avoid prolonged suffering. Pain from events such as divorce or the death of a loved one may feel unbearable at the time, but our ability to adapt allows us to eventually recover.

The “hedonic adaptation effect” helps explain why research shows that external factors like weather, scenery, house size, or the type of car we drive account for only about ten percent of our overall happiness. These are one-time changes that quickly become “life constants” to which we easily grow accustomed.

So which factors do have a lasting impact on our happiness? Let’s consider a life scenario. Suppose you’ve just started a family and saved enough money to buy a home. You now face a choice: buy a small house in the city near your workplace, or a large house in the suburbs farther away? Let’s set aside potential property appreciation and focus only on happiness. Which option would make you happier?

A bigger house might seem more comfortable. But will it truly make you happier? Probably not. Researchers have identified two key factors that have a lasting effect on happiness.

The first is commuting time. Studies show that commuting has a significant impact on happiness. A survey of working women in Texas asked them to rate their satisfaction with nineteen daily activities. The lowest-rated was the morning commute, and the third-lowest was the evening commute. So when choosing a house, size follows the same logic as before: as long as the house is big enough to live in, we quickly adapt to its size. But the frustrations of commuting are inescapable because we endure them every day. Long commutes are like a twice-daily pinprick—one in the morning and one in the evening—that steadily lowers happiness.

Housework is similar. A larger home means more time, energy, or money spent on maintenance. Vacuuming, tidying, scrubbing, repairing—all require more effort. Day after day, looking around at a big house may bring more exhaustion than joy. So considering both commuting and cleaning time, a smaller house near the office is likely to bring more happiness than a distant, larger one.

Now suppose you’ve decided to buy the smaller house near your office. Next, while choosing a neighborhood, you face another dilemma: two groups of friends invite you to join their communities. One group is much wealthier than you, while the other has a similar economic status. If the homes in both neighborhoods are affordable, which would you choose? Or would you rather live in a place where you know no one?

Happiness research suggests that living near friends with a similar economic background is likely to yield the highest happiness among these options.

First, being in a community with friends is more satisfying than being in a place with no friends. As we discussed when reviewing The Good Life, Harvard University conducted an 85-year study tracking over 700 people to answer one question: what factor brings the most happiness and also affects health and longevity?

Their most important finding was that the key to happiness isn’t money, fame, or power—it’s relationships. The Harvard research team concluded that if they had to distill 85 years of research into a single life lesson, it would be this: good relationships make us healthier and happier. This conclusion has been confirmed by hundreds of other studies over the decades.

So living in a community with friends you like and see often will make you happier. Even if you move to a new area without friends, developing friendships with neighbors can still increase happiness. But should you choose wealthier friends or those with a similar economic status? If you want to maximize happiness, economists advise choosing neighbors with a similar economic level.

Richard Easterlin, known as the “father of happiness economics,” presented a classic and widely cited finding about the “social comparison” effect: our happiness often depends less on our absolute situation and more on how it compares to others, especially when it comes to income.

Imagine you’re a new graduate choosing between two jobs: one pays an annual salary of $100,000, the other $50,000. You’d surely choose the $100,000 job.

But what if we change the scenario slightly? Option one: you earn $100,000, but most of your classmates earn $200,000. Option two: you earn $50,000, but most of your classmates earn $25,000. Which would you pick?

Easterlin posed this question to his undergraduates. About two-thirds chose the second option. That is, even though the absolute amount is lower, they preferred to earn more relative to others. This example perfectly illustrates the power of social comparison—our perception of income depends heavily on how it stacks up against others’ incomes.

So when it comes to happiness, given the choice between a wealthy neighbor and a neighbor with a similar economic level, happiness researchers recommend the latter.

Of course, these are simplified scenarios, and real life is far more complex. But through such comparisons, we can see which factors truly affect our happiness over time. One-time changes that soon become “life constants” don’t have lasting effects because we quickly adapt. Instead, the things we encounter repeatedly in daily life—commuting, housework, relationships, and social comparisons—continue to shape our happiness.

Part Two: How Can We Use Limited Money to Gain Greater Everyday Joy?

Now let’s explore the question posed in the book’s title: Can Money Buy Happiness? The relationship between money and happiness is more complicated than we might imagine. To answer it well, we should separate happiness into two parts: everyday joy and overall life satisfaction across an entire lifetime.

Let’s begin with everyday joy. Can money buy daily happiness?
Without a doubt, money can buy more of the things you desire, which can add some joy to daily life. But the effect does not increase without limit. Globally, studies show that when people’s annual income reaches about $75,000, daily happiness generally rises with income. Beyond that, income seems to matter much less. After this threshold, money is no longer the dominant factor for daily happiness. Instead, health, loneliness, and a sense of self-fulfillment become more important.

Regardless of whether our annual income is above or below $75,000—whatever our income level—we can take certain steps to get more daily happiness from limited funds. Here are some science-based insights that may help:

1. Exercise regularly.
People who exercise are happier, even if it’s just once a week or as little as ten minutes a day.

2. Prefer frequent small purchases over occasional big ones.
We gain more joy from frequent, smaller expenditures than from rare, large ones. Postponing a purchase rather than buying immediately also makes us happier, because delayed gratification builds anticipation, which is inherently pleasurable.

3. Spend on others rather than yourself.
Spending on others brings more happiness than spending on ourselves. If you want a quick way to prompt your brain to release feel-good hormones and create a natural high, the most efficient method is giving. Research shows that when we buy something for ourselves, the happiness lasts only a few minutes, maybe a few hours at most. But when we buy something for someone else—even a small gift—the joy of giving can last an entire day, and often several days or even weeks. Similarly, small acts of kindness toward others produce the same uplifting effect.

Moreover, this giving is not limited to family or friends. Helping or giving to strangers can amplify our happiness even more. One authoritative psychology experiment confirmed that voluntarily sharing food or money with strangers produced a level of happiness up to ten times greater than giving to people we know.

4. Spend on experiences rather than things.
When we spend money on life experiences instead of material goods, we become happier. We mentioned this in our discussion of The Optimal Life. People often overvalue possessions and undervalue life experiences. Yet experiences become part of who you are, while material things do not. Experiences create desire and anticipation and leave lasting memories. Material assets degrade over time, but each time we recall a cherished experience, it gains emotional value. Plus, sharing and talking about those experiences can open doors to new relationships.

Part Three: How to Use Limited Money to Gain Lasting Happiness

We’ve just discussed how to use limited funds to increase everyday joy. Now let’s look at how to use limited money to cultivate long-term happiness.

Research shows that, over the long run, many people’s life satisfaction and happiness do steadily rise with income. But further studies reveal that this is not simply because their material lives become richer. Rather, money enables them to enjoy better nutrition and healthcare—which improves physical health—and also gives them more free time and more meaningful, enjoyable work.

So yes, many people do become happier as they grow wealthier. But not all wealthy people are happier—because they may not spend their money in the right ways.

How can we maximize lifelong happiness at a given level of wealth?
First, we must take good care of our physical health. Beyond that, this book suggests focusing on three key areas: relationships, autonomy, and ability alignment. These are three core psychological needs for human beings.

1. Relationships

We have already emphasized their importance many times. Relationships strongly affect both daily joy and long-term happiness. Research shows that a strong network of family and friends is a huge source of happiness and also benefits our physical and mental health.

A 2010 study that compiled data from 148 earlier studies—exploring the link between mortality rates and social interaction—found that a robust network of close social connections boosts longevity to a degree comparable to quitting smoking. And it’s not only relationships with family and close friends. Friendly interactions with strangers—a supermarket cashier, a parking attendant, a barista—can also improve our happiness and well-being.

The book also advises combining relationships with positive experiences. In other words, if you want to gain more happiness from life experiences, share them with family and friends. For example, instead of buying yourself a luxury item, spend the same money on a trip. Better yet, take friends along. Similarly, plan a family reunion, go to a concert with colleagues, camp with friends, or watch a favorite movie with your child. These shared, joyful experiences create multiplied happiness and become treasured memories that continue to nourish us over time.

2. Ability Alignment

This means spending time and money on activities you enjoy and excel at. Doing things you’re good at significantly boosts happiness. Research also shows that work which provides a sense of achievement improves health.

A University of Michigan study examined workers over 50 and found that job features like accomplishment, independence, variety, authority, and creativity were strongly linked to better health in later life—an effect comparable to exercising three times a week.

Some people are fortunate to start their careers in fields they love and excel in. Others, however, may take higher-paying jobs they don’t enjoy or aren’t suited for, simply to make a living. In that case, saving diligently serves a purpose: it gives you the financial freedom to change jobs later. Knowing you have enough savings to cover a year or more can give you the courage to leave a job and pursue work that matches your strengths. Likewise, having a financial cushion allows you to be patient in your job search and to accept a role you love—even if the starting salary is lower.

3. Autonomy

This refers to doing things because you want to, not because you must, and being able to choose when and with whom you do them. The greater our sense of autonomy, the stronger our happiness.

Morgan Housel, author of the bestseller The Psychology of Money, once shared a story. In college, he dreamed of working in investment banking for the high salary. In his junior year, he landed a summer internship at an investment bank in Los Angeles and was thrilled. But on the very first day, he realized why investment bankers are paid so much. As he put it: “They work hours and endure pressure beyond human limits.” Every waking moment was spent racing to meet his boss’s demands, and getting home before midnight was a luxury. In that industry, there’s a saying: if you don’t come in on Saturday, don’t bother coming in on Sunday.

So the internship he had longed for became one of the most miserable experiences of his life. The internship was supposed to last four months, but he quit after just one. Ironically, Housel actually enjoyed the work itself—it engaged his intellect and gave him a sense of value. But he found that doing something he loved without control over his time felt no different from doing something he disliked. This illustrates how a sense of control—or autonomy—is a critical factor in happiness.

Psychological research supports this. In his 1981 book The Sense of Well-Being in America, psychologist Angus Campbell found that some people were consistently happier than others. His conclusion: “Compared with any objective life conditions we considered, a strong sense of control over one’s own life is a more reliable predictor of happiness. Not salary, not house size, not job quality—but the ability to decide what you want to do, when to do it, and with whom. That is the universal variable that determines happiness.”

Here’s another true story. An entrepreneur named Derek Sivers once shared how he became “rich.” He said that when he was 22, he worked in downtown Manhattan earning the minimum wage of $20,000 a year. By living frugally for two years, he saved $12,000. With that savings, he quit his job to become a full-time musician and never worked for anyone else again.

When a friend asked him to elaborate, Sivers said, “That’s it. That’s the whole story.” The friend asked, “But what about starting and selling your company later?” Sivers replied, “That didn’t really change my life—it only increased the numbers in my bank account. The real turning point was when I was 22 and quit to do what I loved full time.”

In other words, Sivers felt that at 22, when he chose to pursue music full time, he had already become a true millionaire—because he accomplished something many wealthy people never do: the freedom to live on his own terms.

Happiness is complex and different for everyone. But if there’s a common denominator—a universal source of joy—it is this: autonomy over one’s life. The greatest benefit of wealth is that it can provide more time and options. No luxury item can compare to that.

Conclusion

Today, through this book, we first explored some counterintuitive truths about happiness, then discussed how to use limited money to gain greater daily joy and how to use limited money to achieve deeper, long-lasting happiness. From the perspective of lifelong well-being, we can see that the purpose of accumulating wealth should not be to own more material possessions, but to gain the power of choice: the ability to do what we love and excel at, to delegate what we dislike or aren’t good at, and to spend time with people we care about doing things we enjoy, for as long as we wish. These are the greatest dividends money can provide.

Beyond this, the book explores other intriguing topics. For example: after retirement or achieving financial independence, how can we stay happy and avoid feelings of emptiness? The book suggests using past moments of “flow” as a self-discovery tool to find what truly excites and fulfills us. We can ask ourselves: If money were not an issue, how would I choose to spend my time? If I were writing my own obituary, what accomplishments would I want to be remembered for? When in my life have I been happiest? Looking back on my work, which aspects did I enjoy the most? Have I ever been so absorbed in an activity that I lost all sense of time? The last three questions, in particular, help us recall those experiences of complete immersion.

The book also delves into more finance-focused questions, such as how to avoid bankruptcy in old age, how to earn steadier returns on investments, and how to build a diversified portfolio with an entire lifetime in view.

*Don’t have time to read full-length business books? We’ve got you covered.

Every day, we distill one powerful book on business, economics, or investing — so you can learn the key ideas, without spending hours flipping pages.