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Income & Happiness Studies: How much is Enough?

Last updated by on 13 Comments

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. I took a poll in September of 2010 where 75% of you said you needed over $75,000 to reach peak money/happiness (money hungry wolves!).

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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13 Comments »
  • Julie says:

    I think you make some really good points here. I don’t think there is some magic number for how much income will make a person optimally happy, since there are so many other factors (some of which you point out).

    For me, spending my money and actually having plenty left over is what makes me happy. So if my savings rate increased by 20%, I would probably be less happy because I would be enjoying less (say, going out to eat less often, an activity that actually does make me happy).

    The ideal,of course, is to make more money, so I can keep my spending as it is (or spend more) and still save just as much if not more.

    I’d like to reach a point in my life where I can afford everything I want without sacrificing my savings (meaning, my 401k and IRA are maxed out, I’m investing a satisfactory amount, and have an emergency fund). If I had to estimate an income amount for that, living in New York, it would probably be around $200,000 for my “household” (meaning, combined with my boyfriend).

  • LC says:

    Although income is important, I think increased happiness is due more to independence and freedom in a job. Typically, people get more independence and freedom in a job when they move into management and administrative jobs. Increased salaries also come with this. We spend the majority of our lives at our jobs, and generally I think increased happiness is more due to job satisfaction (independence and freedom) than salary.

  • David says:

    I think that there is probably a stronger correlation to savings rate to happiness.

    I also like what LC said, it could have more to do with job satisfaction then income.

    I think finding an income number doesn’t make much sense due to the several points you already pointed out. It would have to be based on something that fluctuate with the living expenses in the area. Some type of disposalable income calculation.

  • Ross says:

    From what I’ve read, happiness is also correlated with a comparison to those around you. So for example, if you make $75,000 per year, regardless of what you save, if everyone around you is taking home $250,000 per year, you will not be happy as you will compare yourself to their standard of living and feel as though you don’t measure up. Likewise, if you make that amount and live in an area where everyone makes $35,000 per year, you will feel you are doing well and be happier with yourself.

    We do tend to judge ourselves in comparison to others.

  • Long says:

    Excellent points. I think Cost of Living and Personal Savings Rate are correlated pretty closely. Between my wife and I, we do very well in terms of income. But when you look at how much it costs to live in the county that we do and combine in debt and other expenses, we’re not rich. I’d say that we’re happy, but we’d be a lot happier if we could increase our savings so that our tax-advantaged retirement accounts were maxed out and our emergency fund was fully funded.

  • Jennifer from Credit Karma says:

    Great post and definitely an interesting topic to think about. Being from the Bay Area, California, I am also wondering about the magic number when adjusted for cost of living. Someone should look into that- I’d be really interested to see!

  • marksjohnsons says:

    Nice Blog, I think that there is probably ways to savings rate to increase happiness.

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