By Michael Yardney February 18, 2026

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Can Money Really Buy Happiness? The Data Says… Yes — But Only When You Understand What Happiness Really Is

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Can Money Really Buy Happiness? The Data Says… Yes — But Only When You Understand What Happiness Really Is

Key takeaways

Contrary to some old beliefs, money doesn’t cap happiness at a fixed income level. New research shows that both daily happiness and life satisfaction keep rising as income increases.

Money doesn’t buy joy, but it removes the pressures and problems that create unhappiness. Financial security reduces life stress.

In Australia, higher income strongly correlates with better mental health. Census data shows mental health issues drop sharply as income rises.

Housing stability is a major driver of well-being. Unstable or unaffordable housing significantly erodes quality of life, especially for young Australians.

The biggest wellbeing gains occur when people move from low to middle income. Policymakers and individuals should focus on increasing earning capacity and reducing essential costs.

Every few years, a big, seductive idea swept through popular psychology and became so embedded in public thinking that it starts to feel like a universal truth.

It was the claim that money stops making you happier after a certain point.

You’ve probably heard the famous line: “Happiness plateaus at around US$75,000 a year.”

It’s catchy. It feels wise.
And it lets people make peace with their financial limitations by suggesting that beyond a modest income, effort is wasted.

But fact is...that interpretation was never accurate.

And as new research, and a closer look at the original study, reveals, the real relationship between money and happiness is much more complex… but also much more empowering.

With Australian households under pressure from rising interest rates, soaring rents, and escalating living costs, in my mind understanding this relationship is crucial.

And that’s exactly why I recently explored this topic with leading demographer Simon Kuestenmacher on our latest Demographics Decoded episode.

Watch this video on YouTube

For weekly insights subscribe to the Demographics Decoded podcast, where we will continue to explore these trends and their implications in greater detail.

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Where the myth began and why it took off

The “$75,000 happiness plateau” originated in a 2010 study by two behavioural science giants: Daniel Kahneman and Angus Deaton.

Their research was robust, but the media's simplification was not.

As Simon puts it:

“The nuance was lost. People wanted the headline that more money doesn’t matter, but that’s not really what the study said.”

At the heart of the confusion was a critical distinction between two different kinds of happiness:

1. Emotional well-being

How you felt yesterday: Were you stressed? Did you smile? Did something annoy you?

2. Life evaluation

How satisfied are you with your life overall? Are you living the life you want? Are you secure? Are you progressing?

These two measures don’t move in lockstep.

Daily mood tends to improve until people reach a certain level of comfort, where bills are manageable, basic needs are met, and financial stress doesn’t dominate every waking thought.

That was the part that appeared to “plateau” around US$75,000.

But life satisfaction continued rising with income, and this is the part people ignored.

And if we adjust that original figure into today’s Australian dollars we're talking roughly $174,000 a year - a very different benchmark to the simplistic story people have been quoting for a decade.

No wonder the idea gained traction; businesses loved it.

As Simon jokingly noted:

“Bosses liked it. You could get more out of workers without paying them more. Too good to be true, but that’s not what the study said.”

Note: The myth spread because it was convenient, not because it was correct.

The new data: happiness doesn’t plateau after all

In 2021, Matthew Killingsworth revisited the question using a more sophisticated method: a smartphone app that pinged participants throughout the day, asking how happy they felt in real time.

He matched those responses with income data and lifestyle behaviours.

The outcome was that both emotional well-being and life evaluation kept improving as income rose well beyond the supposed “cap.”

In other words, there was no plateau. But the story gets even better.

Kahneman, one of the original authors, initially disagreed with Killingsworth’s findings.

But instead of digging in, he did something extraordinary: He teamed up with Killingsworth to resolve the disagreement using what they called an “adversarial collaboration.”

Two different perspectives, one shared study design.

And the result was published in 2023:

For most people, money continues to increase happiness, both day-to-day feelings and overall life satisfaction, well beyond the old threshold.

Of course there are exceptions. Some individuals remain unhappy at any income due to mental health challenges or fixed personality traits.

But statistically, the relationship is clear:

Note: More money = less stress = more freedom = higher satisfaction.

Why money matters: it removes the frictions that make life hard

Money’s impact on happiness isn't about luxury. It’s about alleviating the grinding stress that erodes well-being.

In our conversation, I shared a personal example: the morning our hot water system blew up on a weekend.

Many families would wait days for a cheaper repair, or simply couldn’t afford an emergency replacement.

I called the plumber, paid the weekend rates, and the problem disappeared within hours.

That’s not indulgence, that’s security.

Simon explains it perfectly:

“If something goes wrong and money is tight, it can derail your whole year. If you’re wealthy, you just shrug it off.”

Think of the mental load that disappears when:

A surprise bill doesn’t ruin your month
You don’t fear emergencies
You don’t lie awake worrying about how to pay rent
You can move to a better suburb for your kids
You can leave a toxic workplace because you’re not living paycheque to paycheque

These aren’t really luxuries; they’re foundations for a functional, stable, meaningful life.

The Australian lens: why income cuts even deeper here

Currently, Australia’s affordability challenges are structural: housing costs absorb a disproportionate share of income, renting is unstable, and mortgage costs are rising.

Essentials, from petrol to electricity, are inflating faster than wages.

That’s why Simon’s demographic insight is so powerful.

Using 2021 census data, he found a striking correlation between income and mental health.

People earning under $20,000 a year had nearly a 1 in 5 chance of having a chronic mental health condition.

As incomes rose:

At around $100,000, only 8% reported such conditions
At around $200,000, it dropped to 5%
Above $500,000, fewer than 4% did

As Simon said:

“Money makes it less likely that you suffer from poor mental health. It doesn’t mean you’re a better person, but it definitely reduces stress.”

In a high-cost nation like Australia, financial strain is destabilising.

Housing instability hits young Australians hardest:

“If you’re jumping leases every couple of years, it’s incredibly stressful. You need the basics right—especially secure housing.”

The real cause of happiness: Security, not Status

As we discuss in this podcast, money doesn’t buy joy, but it buys security, and security creates the conditions where joy can thrive.

Money gives you:

Time - to rest, think, create, connect
Options - to choose your work, your community, your lifestyle
Buffers - against life’s unavoidable challenges
Stability - which strengthens your mental health and relationships

It’s no coincidence that financial stress is one of the top predictors of relationship breakdown.

As Simon notes:

“When financial stress occurs, relationships are more likely to break down. It’s a constant frustration.”

Note: Money reduces friction - at home, at work, and in your own head.

That’s why wealthier people often report higher rates of happiness, even though they still face the same family issues, work stress, or health challenges as poorer people .

The difference is that financial problems don’t compound every other problem.

So what should you do with this information?

1. Build a Foundation of Financial Stability

Financial buffers are more valuable than toys.

Security is more valuable than lifestyle upgrades.

2. Avoid industries, jobs, or businesses that offer poor income ceilings

If income improves happiness, then career strategy matters more than most people admit.

3. Think long-term: invest, don’t just earn

I've written about this often: High-growth assets + time + financial discipline = independence.

4. For leaders and business owners: pay matters more than perks

In business culture is vital. Meaning is vital. Purpose is vital.

But as Simon stresses:

“Do not disregard the power of just handing out more money. People rarely leave well-paying jobs when their cost of living is rising."

5. For policymakers: raise incomes or reduce essential costs

The data is unambiguous. The biggest gains in wellbeing occur when people move from low income to middle income.

Governments can achieve this by:

Boosting wages in essential services
Reducing housing costs through better supply strategies
Supporting industries that generate higher-paying work
Improving education and training pathways

So… can money buy happiness?

Here’s the answer, grounded in data and lived experience:

Note: Money can’t buy happiness directly…but it can buy the conditions that make happiness possible.

It can’t protect you from grief, or remove all stress, or guarantee good relationships.

But it can reduce anxiety, protect you from life’s unpredictable shocks, create freedom, improve your mental health, shelter your relationships, give your children stability, and give you the dignity of choice.

As I told Simon during our conversation: Money helps most when it buys security, not status.

Use it wisely, build buffers, invest in your future, and structure your financial life deliberately, and yes, money will absolutely make you happier.

Not because of the dollars themselves…but because of the life those dollars allow you to build.

For weekly insights, subscribe to the Demographics Decoded podcast, where we will continue to explore these trends and their implications in greater detail.