What makes people the happiest and does money truly fit into this equation?
People believe that material wealth will make them happy, and that more will make them happier. The problem with this belief is that it's just right enough to convince us it's completely right.
Studies of the relationship between well-being—or happiness—and income are remarkably clear. If you take someone in dire poverty and provide them with enough income to move into the middle class, you make them extremely happy in a lot of important ways. You relieve them of the pain of hunger and concern about the welfare of their children, for example.
On the other hand, if you take someone from the middle class and move them into the stratospheric rich, you do almost nothing for their happiness. It's like eating chocolate: The first bite is great, the second bite a little less so, and by the fourth bite, it does nothing for you whatsoever.
It turns out it's that way with money. The first $20,000 is fantastic. The next is pretty darn good. But very quickly, somewhere between $40,000 and $80,000, it levels off. More money won't make you more happy.
Human beings have the tendency to believe that if something made them feel good, more will make them feel better. They make the same mistake with gin and tonics. Money is a wonderful thing, money creates happiness, but you've gotta know when to quit.
If you're spending all of your time pursuing something that can't bring you any more pleasure, you're not spending time pursuing the things that could bring you pleasure. What are those things? We know from lots and lots of studies that one of the very best predictors of happiness and well-being is your network of social relationships. People with good families and good friends are happy people. Period.
—Daniel Gilbert, PhD, professor of psychology at Harvard and author of Stumbling on Happiness (Knopf, 2006).