Money can't buy happiness... unless you earn less than $75,000

I just read a very interesting new study on the relationship between wealth and happiness by two distinguished Princeton professors, economist Angus Deaton and Nobel Prize-winner Daniel Kahneman.

In line with current happiness research, they separately investigate the impact of wealth on short-term happiness (which they call “emotional well-being”) and long-term life satisfaction (“life evaluation”). Someone could be very happy with their life overall but miserable today because a close friend was hit by a bus. Conversely, they could be very unhappy about the life they’ve led but overjoyed today because they hit the lottery.

The study’s main conclusion:

Income and education are more closely related to life evaluation, but health, care giving, loneliness, and smoking are relatively stronger predictors of daily emotions. When plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ∼$75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.

Because income — over and above $75,000 — does not affect short-term “emotional well-being,” the correlation of long-term life satisfaction with income is likely due to the power and prestige of jobs that pay very high salaries, not the extra money itself.

So, money can buy happiness… up to about $75,000. Beyond that, as I interpret this finding, money doesn’t make us happier. People who work in jobs that pay extremely well do feel greater satisfaction when they reflect on their lives, but that’s likely because highly remunerative jobs tend to be more fulfilling, empowered, creative, prestigious, etc.

Posted by James on Friday, September 10, 2010