Can money buy happiness?

As the post-Christmas credit card bills roll in, most of us would say that a little more money wouldn’t go amiss. In fact, according to research for the Guardian in 2015, money is the greatest source of anxiety for Britons.

But would more of it really make us happy? It’s a question that fascinates – and divides – psychologists.

One survey of 1,000 Americans, conducted in 2010, concluded that money does make us happier – but only up to a certain point. The findings, by psychologist Daniel Kahneman and economist Angus Deaton, both from Princeton University, showed that self-reported levels of wellbeing increased with salary up to $75,000 (roughly £50,000) a year. But after that, increasing amounts of money had no further effect on happiness.

However, a more recent study, published by researchers at the University of Michigan in 2013, challenged the idea that the positive effect of money plateaus. After comparing life satisfaction and happiness levels in both rich and poor countries, and rich and poor people within a country – with “rich” being defined as an income greater than $15,000 (roughly £10,000) per person – Betsey Stevenson and Justin Wolfers concluded: “The relationship between wellbeing and income … does not diminish as income rises. If there is a satiation point, we are yet to reach it.”

This would strike a chord with actor Bo Derek, who once claimed: “Whoever said money can’t buy happiness simply didn’t know where to go shopping.”

Anecdotal evidence is just as conflicted. In 2015, analysis of data from the Office for National Statistics’ Wealth and Assets Survey showed that for Britons aged 16 and over there is a clear link between household wealth and happiness, life satisfaction and personal sense of worth. Yet when Markus Persson, creator of Minecraft, sold his gaming company to Microsoft for £2.5bn in 2014, it didn’t give him the huge happiness boost you might expect, as his tweet from August 2015 showed: “Hanging out in Ibiza with a bunch of friends and partying with famous people, able to do whatever I want, and I’ve never felt more isolated.”

Similarly, billionaire John Caudwell, founder of Phones4U, admitted on the BBC programme Britain’s Spending Secrets that there are times when he would put his happiness level at just one or two out of 10.

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Some would argue that the effect of money, whatever it is, can only ever be minimal because individual happiness is based on completely different criteria. According to psychology professor Sonja Lyubomirsky, author of The How of Happiness, about 50% is down to our baseline happiness level, which is something we’re born with. In other words, some people are just naturally happier than others. By contrast, life circumstances – which would include income levels – account for just 10% of our total reported happiness.

The final 40% is about “intentional activities”, or things we can do to make ourselves happier. Money does play a part in this – but not in the way you might expect.

For example, being generous makes us happy. Michael Norton, of Harvard Business School, talks about “pro-social spending” – in other words, spending money on others – and how it is linked to wellbeing. In a 2008 study with fellow researchers Elizabeth Dunn and Lara Aknin, he gave 46 participants either $5 or $20 and told some to spend it on themselves and others to give it away. He also recorded their self-reported happiness levels before and after the task. Those who had given their windfall away showed a greater increase in wellbeing than those who had spent the money on themselves.

Meanwhile, researchers at the US’s National Institute of Health demonstrated a link between charitable giving and activation in the part of the brain associated with pleasure, triggering the release of endorphins or “happiness hormones”, which cause what scientists refer to as the “helper’s high”.

And if we spend on others in a way that builds relationships, so much the better. Harvard Business School’s Aknin did an experiment in which she gave people $10 Starbucks gift cards and asked some to spend the card on themselves, others to give the card to someone else, and still others to use the card to take someone out for a coffee. The happiest group was the one that had been able to spend on others while spending time with them – the combination of altruism and connection upped their happiness levels.

So does money make us happier? Well, yes and no. We need enough to cover our basic needs, and a rising salary can impact our wellbeing, but we also need to remember the positive effects of generosity and building relationships. Perhaps our focus should be less on how much money we have, and more on how we use it.