One More Time: Money & Happiness

The relationship between money and happiness is one that fascinates me, and I have written about it several times.

The most recent post was over six months ago, so I think it’s OK to share the latest research I read on money and happiness.

The thrust of this research was looking at the question, “If you had to pick a dollar amount where people are happy with their income, what would it be?”

I wouldn’t call this new research, but more updated research. This question was first looked at by Nobel Prize winners Angus Deaton and Daniel Kahneman.

Their research, which analyzed Gallup surveys of 450,000 Americans in 2008 and 2009, suggested that there were two forms of happiness: day-to-day contentment (emotional well-being) and overall “life assessment,” which means broader satisfaction with one’s place in the world. While a higher income didn’t have much impact on day-to-day contentment, it did boost people’s “life assessment.”

Deaton’s and Kahneman’s research indicated that a person’s day to day happiness (emotional well-being) increases as people earn more money, but only up to $75,000. After that level of income is reached, additional money  has no measurable increase in day-to-day contentment.

For people who earn that much or more, individual temperament and life circumstances have much more influence over their emotional well-being than money. However, more money does boost people’s life assessment. People who earned $200,000 a year, for instance, report more overall satisfaction than people earning $100,000.

“Giving people more income beyond $75,000 is not going to do much for their daily mood, but it is going to make them feel they have a better life. … As an economist I tend to think money is good for you, and am pleased to find some evidence for that,” Deaton stated back in 2010 when the research was published.

An updated study was conducted by researchers at Purdue University and the University of Virginia. Their results were published in the February issue of Nature Human Behavior. Here is the abstract:

Income is known to be associated with happiness, but debates persist about the exact nature of this relationship. Does happiness rise indefinitely with income, or is there a point at which higher incomes no longer lead to greater well-being? We examine this question using data from the Gallup World Poll, a representative sample of over 1.7 million individuals worldwide. Controlling for demographic factors, we use spline regression models to statistically identify points of “income satiation.” Globally, we find that satiation occurs at $95,000 for life evaluation and $60,000 to $75,000 for emotional well-being. However, there is substantial variation across world regions, with satiation occurring later in wealthier regions. We also find that in certain parts of the world, incomes beyond satiation are associated with lower life evaluations. These findings on income and happiness have practical and theoretical significance at the individual, institutional and national levels. They point to a degree of happiness adaptation and that money influences happiness through the fulfillment of both needs and increasing material desires. 

A few things stood out to me from reading the abstract (full disclosure – I did not have access to the complete paper).

First, there is no change from the first study in the level of income ($75,000) needed to achieve emotional well-being.

Second, the new research offers a specific value for the life satisfaction question – $95,000, which I do not believe was part of the first research on the topic. In fact, Deaton and Kahneman found that more money does boost people’s life assessment. People who earned $200,000 a year, for instance, report more overall satisfaction than people earning $100,000.

Third, the latest research suggests that in certain parts of the world, incomes beyond satiation are actually associated with lower life evaluations, which seems to be in direct contrast with the original study.

A reason for the potential decline in well-being or satiation is offered in one summary of the latest research, “after the optimal point of needs is met, people may be driven by desires such as pursuing more material gains and engaging in social comparisons, which could, ironically, lower well-being.”

My guess is that the U.S. is not one of the regions of the world where income beyond satiation is associated with lower life evaluations, but we are more in line with the original findings of more money, more satisfaction.

I plan to try and get my hands on the full research report to see if my guess is correct. I just think most Americans tend to think more money is better, and are thus more satisfied when they are earning more.

In the meantime, I think the key takeaway, from both reports, is that money does have an impact on emotional well-being and life satisfaction, but it is only one of many factors that impact our happiness.

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