Yes - money can buy mental health. That's the finding in this new paper (pdf):
We offer new evidence by using longitudinal data on a random sample of Britons who receive medium-sized lottery wins of between £1000 and £120,000 (that is, up to approximately U.S. $200,000). When compared to two control groups -- one with no wins and the other with small wins -- these individuals go on eventually to exhibit significantly better psychological health.
The effect is quite big. Lottery winners see their scores on a General Health Questionnaire test of mental health improve by 1.4 points (on a 36-point scale). Widowhood - generally the worst thing that can happen - loses five points.
This is important because it suggests there really is a causal link from money to mental health. Sure, many studies have found a tendency for the rich to be happier than the poor within a country. But those leave the question of causality open. Maybe happier people are more productive - because people who feel in control of their lives work harder. Or maybe higher earners are happier because of their higher social status or job satisfaction.
This study suggests money matters.
There are two caveats though.
First, lottery winners might not be a random sample. Big winners are probably heavy players of the lottery. And the people who choose to play the lottery heavily players are likely to be precisely those people who think a big win will make them much happier - which is why they spend so much money looking for it. People with a lower expected (upward) marginal utility of wealth probably play the lottery less and so win less.
The authors say this is unpersuasive. But I'm not so sure.
Second, none of this rules out the possibility that wealth is a positional good - maybe lottery winners feel happier not because they're richer than before, but because they've become richer than their peers.