When it comes to income, there is no magic number
By Joe Pinsker of The WSJ. Excerpts:
"Once your income hits $75,000, have you hit the peak salary for happiness?
Not quite.
The oft-cited $75,000 figure—now about $110,000 in today’s dollars—comes from a 2010 study by two Nobel laureates that made the crossover from academia to personal-finance meme. More recent research suggests that there may be no household income at which happiness peaks, and that our money might influence our emotions well beyond that threshold.
There may be something like happiness tax brackets: Just as your take-home pay becomes a smaller and smaller share of your earnings as you move up the income ladder, so does your take-home joy.
“It would be absolutely wrong to reduce the pursuit of happiness to the pursuit of money,” said Matt Killingsworth, a senior fellow at the University of Pennsylvania’s Wharton School. “At the same time, it would also be wrong to totally discard money as a meaningful factor.”"
"the science behind $75,000 was more nuanced than the version that got lodged in people’s heads. The figure stuck because it was easy to grasp and tapped into anxieties about the pursuit of money.
It was also wrong, some researchers say.
Much of the current thinking on this debate can’t be summed up in a single number, but rather 10 words: Money buys happiness. With diminishing returns. And no magic number.
Money buys happiness
People with higher incomes tend to be happier day-to-day and overall, numerous studies of Americans have found.
The $75,000 number, based on more than 450,000 Americans’ responses to a Gallup survey, applied solely to day-to-day mood. People’s overall life evaluation was higher at household incomes above $120,000 than just below it, the original study found.
Later studies have called the $75,000 figure into question. In 2021, Killingsworth used data measuring more gradations of happiness than the original paper and found that day-to-day moods continued to improve past $75,000 in 2010 dollars.
He then collaborated with the late Daniel Kahneman, one of the 2010 paper’s co-authors. They ended up agreeing that Killingsworth’s 2021 finding was right.
Getting more money causes people to be happier with their lives, other studies show. A 2020 paper in the Review of Economic Studies looked at lottery winners in Sweden and found that the boost was still observable more than a decade later."
"money matters for happiness, but not enormously. Since most people live in a fairly narrow band of the happiness spectrum, big increases in income are generally needed to produce the most substantial increases in happiness."
"researchers haven’t nailed down precisely why more money is associated with more happiness. Killingsworth’s leading explanation: It isn’t what the money buys, but the choices it affords.
Those who reported higher happiness as adolescents went on to make more money around age 30, even after accounting for their socioeconomic background"
"With diminishing returns
As your income increases, each dollar makes less of a difference to your happiness.
The effect of a raise on one’s happiness is more about the percentage change than the dollar amount. If your pay doubled from $50,000 to $100,000, it typically would need to double again to $200,000 to generate an equivalent happiness boost, according to the work of Killingsworth and others."
"In Killingsworth and Kahneman’s 2023 paper, happiness stopped rising at incomes above $100,000 for some groups, while it actually started rising faster for other ones."
"Numbers, but no magic
There is no magic number—especially not $75,000—that researchers agree on as a point where happiness stops rising with income.
Some studies, such as those by Killingsworth, find that there is no such point, or at least they haven’t found it in the available data. Perhaps it exists at an income level that there aren’t enough data points for, such as $1 million or more."
"Even if there continued to be a subtle boost in happiness, “it’d be so tiny it’d be meaningless,” said Jan-Emmanuel De Neve, an economics professor at Saïd Business School at the University of Oxford who studies well-being."
"Angus Deaton, the other author of the 2010 study and a Nobel laureate, said he thinks that part of the popularity of the $75,000 figure was that it seemed within reach for many people."
Related posts:
Income and emotional well-being: A conflict resolved (2024)
Does Money Buy Happiness? (2024)
The Unexpected Ways a Big Raise Affects Your Happiness (2024)
The Fun Things in Life Are Giving Us Buyer’s Remorse (2023)
How Happy Can a Windfall Make You? (2022)
Happiness Is Not What We Think It Is (2022)
More On The Economics Of Gift Giving. (2018)
What Brings More Happiness, More Time Or More Money? (2017, this study found that people that chose more free time over more money tended to be happier)
Do income and happiness tend to go together? Yes, both within and across countries . (2017)
Science proves it: Money really can buy happiness . (2017)
Dagwood Bumpstead Explains The Hedonic Treadmill (2015)
Does Money Buy Happiness? (2011)
Does Wealth Make Us Happier? (2010, maybe wealth buys freedom that makes us happier)
Does Or Can Money Buy Happiness? (2008)
Interesting Book: Stumbling on Happiness (2007)
Does Money Make You Mean? (2007)
Related articles:
Money buys happiness after all (By William Easterly and Laura Freschi, 2011)
The happiness wars (From The Lancet, 2011)
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