Issue time 8:14 am, by CTreit
Category:Happiness, personal finance
Money and Happiness Once Again
September 29th, 2010You probably have read or even participated in a debate about the connection between money and happiness. Recent studies have shown that money starts contributing less and less to one’s happiness once you reach an income of $75,000, a number under debate but seemingly near magical by some accounts. Becoming overly focused on a target $75,000 annual income misses the whole point though!
First of all, these studies do not claim that a higher income beyond $75,000 does not have any affect on one’s happiness at all. If you can increase your income from $75,000 to $100,000 within a year, I am sure that you will agree that you will feel pretty good about this raise. It will make you a little happier than you were with $75,000 annual income.
Second, these studies tell us that once you make $75,000, things like relationships (marriage, family, friends) and health take a more important role in your happiness.
Think about one typical way in which life can evolve. You are in your 20s, you get married and you get your career going. You and your spouse are busy getting a promotion, making more sales, or doing whatever advances you financially. As you make more money, your joint efforts make the two of you pretty happy, but you also realize that the two of you hustle quite a bit.
At some point, say in your early 30s, this hustle won’t be worth it to you anymore. You will want to spend quality time with your spouse and family, something that you have sacrificed as you have climbed the income ladder.
Most people will feel happier if they deepen the relationship with their spouses rather than making $80,000 instead of $75,000. That is the point and result of these studies. When you reach that $75,000 threshold, your daily financial struggles can be managed much easier and you start focusing on other things that make you feel happy. So, it’s not that the money makes you happy. You’re just struggling a lot less, and have the luxury of focusing on getting happy by doing things other than chasing the Almighty Dollar.
Having said all that, there is one other aspect of these studies that are often overlooked. When you evaluate your life (which is different from feeling happy), your income does matter if you’re lucky enough to see it go beyond $75,000. A higher income (and education) makes you evaluate your life better. It is like winning in monopoly, in tennis, in baseball, etc. Or perhaps H.L. Hunt described it well: “Money is just a way of keeping score.”
This post is a very short summary of the ideas in the article “High income improves evaluation of life but not emotional well-being” published by the Nobel Prize laureate Daniel Kahneman, a pioneer of behavioral finance, and by his colleague at Princenton University, Angus Deaton.
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