Income & Happiness Studies: How much is Enough?




Can money buy happiness?

Yeah, probably, to an extent. Or it can at least remove some unhappiness. We can all agree on that, right?

Better question: “at what $ amount can money no longer buy happiness?”

There’s been a number of studies that have attempted to answer this question by pinpointing a magical income number at which happiness is much easier to obtain.

A Gallup poll in 2010 pegged $75,000 as the magic household income at which happiness couldn’t be further influenced by additional income.

A more recent Marist College poll came to the conclusion that $50,000 was a key happiness landmark. Now don’t you feel greedy?

So there you go… just earn $50,000, keep your salary increases to the rate of inflation and every year you’ll have the hap, hap, happiest Christmas since Bing Crosby tap-danced with Danny f’ing Kaye. No?

income and happiness




Are these Money and Happiness Studies Legit?

I always find these money and happiness studies interesting, but they always leave me with a bit of a “hungry-for-more” feeling.

I am always left questioning three things:

  1. Causation vs. Correlation: Perhaps confidence, location, gender, race, education level, or even age is a bigger determinate of happiness than income? In aggregate, those who achieve more than $50,000 in income are happier than those who achieve less. But is that happiness determined by the income or are there other factors that led to the lower happiness/income or higher happiness/income? A correlation between income level and happiness does not mean that the income level led to the happiness. Exhibit that even though the U.S. is the wealthiest nation, it’s citizens are not the happiest.
  2. The Impact of Location: How does location impact happiness at different income levels? $50,000 will take you a long ways in Fort Wayne, but not very far in San Francisco. You can’t paint a broad brush across the entire U.S. when expense levels can vary so much by geography. What is the magic number when adjusted for cost of living? Nobody is looking at this.
  3. The Impact of Expenses: How do spending habits influence happiness? Is someone who spends much more than peers in their geography less likely to be happy? Nobody is looking at this either.

What Can we Learn From Income and Happiness Studies?

Despite their weaknesses, I think that these studies do help add some credibility to the following assertions:

  1. Meeting basic needs does influence happiness: just scraping by to put food on the table and pay for other basic needs is going to have an adverse impact on happiness. It would be hard to find people who disagree with this, but the numbers in these studies back this assertion.
  2. Stuff does not equal happiness: at a certain level, more buying power (more stuff) does not lead to more happiness. Therefore, if happiness doesn’t increase infinitely with income, one would have to assume that stuff does not lead to happiness. So stop buying all that stuff!
  3. Take comfort in enough: who doesn’t want to be happy? The pursuit of money for the goal of increasing happiness is something that most of us have bought in to. As a wage earner, take comfort in knowing that you don’t have to earn all that much to influence your happiness. $50,000 or $75,000 per household (divide by two for your personal number in a two-income household) can be reached by just about everyone.

A Challenge to Researchers

I have a theory. We know that expenses are very strongly influenced by geography. We also know that the ability to meet expenses has an impact on happiness levels. So instead of looking at income (which varies by geography), maybe we should look at a different number: personal savings rate.

A household that makes $75,000 and spends $100,000 is probably going to be pretty unhappy, right? And one that makes $50,000 with only $10,000 in expenses? Much happier (in most cases). But the money/happiness studies don’t consider expenses at all. Looking at a household’s personal savings rate in relation to happiness already goes one step beyond income – expenses and geography are automatically factored in.

I would be willing to bet there is a stronger correlation between personal savings rate (maybe even expenses) and happiness than there is between income and happiness.

So then the question becomes: at what personal savings rate is happiness maxed out?

What do you think?

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