“Can I ask you a question?”
“Sure!”
“Are you happy?”
“Well, I got a boat, good friends, and a trampoline. You tell me.”
That was a revelational series of dialogue from the 30 Rock episode where fictional GE executive Jack Donaghy went to Liz Lemon’s high school reunion and realized that everyday middle-class folk were happier than he was. They do say money can’t buy happiness, but research argues it, in fact, can. But only up to a point.
A research paper out of Purdue has caught a few headlines recently by trying to dial in on that point at which further increases in annual income cease to increase happiness. The paper tries to go beyond a very similar study done by Agnus Deaton and the great Daniel Kahnemen almost a decade ago. That study used 2008 and 2009 data, and found the number to be around $75,000 in the US, although, as the Purdue paper points out, it could have technically been anywhere between $60,000 and $120,000 because of the use of categorical data. “High incomes don’t bring you happiness, but they do bring you a life you think is better,” Deaton and Kahneman concluded.
The number the Purdue group found, as it pertains to overall life satisfaction (i.e. are you living your best possible life?), is about $105,000 for a single individual in Northern America (U.S. and Canada). As far as your day-to day emotional well being, they found positive affect (things like happiness, enjoyment, and smiling/laughter) satiated at $65,000. So beyond that amount, positive emotions are more or less influenced by factors other than money. At $95,000 you’ve reached the satiation point for negative feelings of emotional well being like stress, worry, and sadness. So beyond that point money isn’t likely to cure your blues and can even begin to have a negative impact for some. ‘Mo’ money, mo’ problems,’ I believe is the expression.
Of course, it’s a little more nuanced than that. How you compare to your friends or other professionals in your peer group makes a big difference. Someone making $60,000 out of college while their friends are making only $30,000 is probably going to feel quite a bit more satisfied than, say, someone making $100,000 when others in their same role with similar experience are making two or three times that. Likewise, someone living in Fort Wayne might feel flush making $75,000 per year, while someone in San Francisco might feel borderline destitute making the same. Levels of educational attainment and the number of dependents you have will also play a role. Even the amount of time you spend on social media, where people’s lives are often filtered to look as fabulous as possible, may have an effect.
So aiming for exactly $105,000 in your personal life might not be the exact goal and probably misses the point. The key message here is the marginal utility of income diminishes as it increases, and probably faster than most would think. A $10,000 bump in pay could be life-changing for someone at the poverty line, but it would be significantly less meaningful for someone already making $100,000. It’s a logarithmic function, rather than a linear one. Meaning, to feel a similar effect of a doubling of income from $25,000 to $50,000, one would have to then double again to $100,000.
What you need to find is the point that works for you, where you realize that anything over that would be welcome but won’t really make you any happier. I have a pretty good sense where my number is, having spent significant periods of time below, near, and above it. It is enough to feel secure, live in a nice apartment in a good neighborhood, go out to bars, restaurants and theaters without too much thought, take a couple nice vacations every year, and still have some money left to sock away for a rainy day.
Once you stop seeing improvements in your emotional well-being and life satisfaction with every raise or promotion, it might be a good time to ask yourself “is it still worth it?” Would a continued climb up the corporate ladder mean less time with those I love? Would it be damaging to my health? Would it mean foregoing other passions and leisures that I really enjoy?
If you haven’t hit that point yet, rejoice in the knowledge that more money can still buy you happiness. By all means, keep reaching for that brass ring. Or maybe just move to Latin America or the Caribbean. The study showed it only took $35,000 per year to be happy there.
