Personal Finance

Money can actually buy some happiness. But how much?

US News & World Report
David Levine
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DAVID LEE ROTH, THE former singer for the band Van Halen, once acknowledged that money can't buy happiness. "But it can buy you a yacht big enough to pull up right alongside it," he added. That pretty much sums up the conundrum. Is there some point at which the separate scales of income and happiness cross?

If you are to believe recent research published in the journal Nature Human Behaviour, the answer is yes – and that point is in the neighborhood of $60,000 to $75,000 a year per person.

The research, based on data from the Gallup World Poll, a survey of more than 1.7 million individuals from 164 countries, examined purchasing power (in U.S. dollars) and questions about life satisfaction and well-being. It actually found different income levels for different definitions of happiness. The ideal income point, as a worldwide average, is $95,000 for life evaluation, defined as life satisfaction or an overall assessment of how one is doing relative to one's goals and comparisons to others. The $60,000 to $75,000 figure, also a worldwide average, relates to emotional well-being, or one's day-to-day emotions, such as feeling happy, excited, sad and angry.

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Andrew T. Jebb, the lead author and doctoral student in Purdue University's department of psychological sciences, said that the study also found that, once the threshold was reached, further increases in income tended to be associated with reduced life satisfaction and a lower level of well-being.

Because these figures represent a worldwide view, they tend to be higher in wealthier regions; thus, the U.S. "happiness point" for life evaluation was actually about $105,000, Jebb says. The exact number for each individual is subjective, of course. And that's what makes the question of money and happiness so interesting. "It's very provocative and relatable for nearly everyone," he says. "I thought we would find a point where money stops benefiting you. Income can rise forever, but at some point you can't get happier. Finding it universally at every region was cool to see."

More money equals less happiness?

Social scientists have been looking into the money-happiness relationship for a long time. In general, there is "a weak to moderate correlation between income and happiness," says Shigehiro Oishi, a professor in the department of psychology at the University of Virginia who contributed to Jebb's paper. "It is typically believed that income and happiness correlations are stronger among the poor than among the rich," he says. This means that a difference in annual income from $10,000 to $30,000 "is pretty big for happiness, but $100,000 vs. $130,000 is not as big," he explains.

Jebb's paper seems to confirm that, but it adds the notion that the "satiation point," where more income doesn't lead to more happiness, was higher among Americans, Europeans and East Asians than among Latin Americans, Africans and residents of other less wealthy regions, Oishi says.

Why does happiness seem to level off or even decrease after a certain threshold is met? Jebb suspects that money is important for meeting basic needs, but once those needs are met, people may be driven by more material or social gains, which could actually lower one's sense of well-being. Another possibility, Oishi suggests, is an idea known as hedonic adaptation: "One gets used to what one has, and one's desires increase as one's income level increases," he says. "That is why some people who make a lot of money are not happier than those who make less." Yet another possibility is a side effect of earning more. "Those who make a lot of money are more stressed than those who make less; thus the benefit of more money is reduced by the cost of making more money," Oishi says.

In Jebb's words, "more money means more freedom, more security, but at a certain point the benefits start to reduce. But there are always costs to increases in income, like increased workload, travel, worry. So the benefits diminish, but the costs may stay the same or continue to accrue. That's why it is not clear-cut that a millionaire is a lot happier than someone making a lot less."

The happiness equation

"The conviction of the rich that the poor are happier is no more foolish than the conviction of the poor that the rich are," Mark Twain observed. Happiness, after all, is based on many things. "Happiness is a certain equation," Jebb says. There are a number of unknowns on one side of the equal sign. "Money definitely plays into it, but a lot of other things contribute."

Among them: one's intimate relationship. Relationship satisfaction, such as a marriage, is generally more strongly associated with happiness, Oishi says. A 2004 meta-analysis of other research, published in Psychological Bulletin, found that marital satisfaction was linked more strongly to life satisfaction than one's job or health satisfaction, though both of those were also correlated to happiness as well.

That's not to say that a salary bump isn't going to make you smile – or, if it's big enough, put a down payment on that yacht David Lee Roth mentioned. "To say that satiation is at $105,000 doesn't mean an increase won't make you feel temporarily happier," Jebb says. "But when we look at long-term happiness levels, it means long-term happiness is not much different from higher incomes."