How much happiness can your salary buy? Researchers can’t agree

People with higher incomes tend to be happier day-to-day and overall, numerous studies of Americans have found. (Image: Pixabay)
People with higher incomes tend to be happier day-to-day and overall, numerous studies of Americans have found. (Image: Pixabay)

Summary

When it comes to income, there is no magic number.

Once your income hits $75,000, have you hit the peak salary for happiness?

Not quite.

The oft-cited $75,000 figure—now about $110,000 in today’s dollars—comes from a 2010 study by two Nobel laureates that made the crossover from academia to personal-finance meme. More recent research suggests that there may be no household income at which happiness peaks, and that our money might influence our emotions well beyond that threshold.

There may be something like happiness tax brackets: Just as your take-home pay becomes a smaller and smaller share of your earnings as you move up the income ladder, so does your take-home joy.

“It would be absolutely wrong to reduce the pursuit of happiness to the pursuit of money," said Matt Killingsworth, a senior fellow at the University of Pennsylvania’s Wharton School. “At the same time, it would also be wrong to totally discard money as a meaningful factor."

Like the 10,000-hour rule popularized by Malcolm Gladwell, the science behind $75,000 was more nuanced than the version that got lodged in people’s heads. The figure stuck because it was easy to grasp and tapped into anxieties about the pursuit of money.

It was also wrong, some researchers say.

Much of the current thinking on this debate can’t be summed up in a single number, but rather 10 words: Money buys happiness. With diminishing returns. And no magic number.

Money buys happiness

People with higher incomes tend to be happier day-to-day and overall, numerous studies of Americans have found.

The $75,000 number, based on more than 450,000 Americans’ responses to a Gallup survey, applied solely to day-to-day mood. People’s overall life evaluation was higher at household incomes above $120,000 than just below it, the original study found.

Later studies have called the $75,000 figure into question. In 2021, Killingsworth used data measuring more gradations of happiness than the original paper and found that day-to-day moods continued to improve past $75,000 in 2010 dollars.

He then collaborated with the late Daniel Kahneman, one of the 2010 paper’s co-authors. They ended up agreeing that Killingsworth’s 2021 finding was right.

Getting more money causes people to be happier with their lives, other studies show. A 2020 paper in the Review of Economic Studies looked at lottery winners in Sweden and found that the boost was still observable more than a decade later.

The relationship between money and happiness is clear, but not simple.

One nuance is that money matters for happiness, but not enormously. Since most people live in a fairly narrow band of the happiness spectrum, big increases in income are generally needed to produce the most substantial increases in happiness.

Second, researchers haven’t nailed down precisely why more money is associated with more happiness. Killingsworth’s leading explanation: It isn’t what the money buys, but the choices it affords.

Happiness itself is also linked to people’s finances. Those who reported higher happiness as adolescents went on to make more money around age 30, even after accounting for their socioeconomic background, according to a 2012 study in PNAS.

With diminishing returns

As your income increases, each dollar makes less of a difference to your happiness.

The effect of a raise on one’s happiness is more about the percentage change than the dollar amount. If your pay doubled from $50,000 to $100,000, it typically would need to double again to $200,000 to generate an equivalent happiness boost, according to the work of Killingsworth and others.

Amy Grable used to stress about having enough in her bank account to cover everyday transactions. But her financial worries subsided as her income rose from roughly $65,000 to $100,000 over the past six years. She paid down some of her student debt and bought a house.

The 42-year-old product manager in Oregon City, Ore., said she doesn’t fantasize about leaping to the next pay tier, in part because the shift she has already experienced, from instability to stability, feels more consequential.

“Where I’m at right now feels perfect," she said.

And then there are those for whom a raise won’t do much. In Killingsworth and Kahneman’s 2023 paper, happiness stopped rising at incomes above $100,000 for some groups, while it actually started rising faster for other ones.

“For some people, money just matters more than others," Killingsworth said. He is currently studying what other traits might predict those differences.

Numbers, but no magic

There is no magic number—especially not $75,000—that researchers agree on as a point where happiness stops rising with income.

Some studies, such as those by Killingsworth, find that there is no such point, or at least they haven’t found it in the available data. Perhaps it exists at an income level that there aren’t enough data points for, such as $1 million or more.

“It’s very hard to do work on the very rich," said Justin Wolfers, an economist at the University of Michigan. “There’s not many of them and they don’t like to answer surveys."

Other researchers say that beyond a certain level of pay, happiness effectively plateaus.

Even if there continued to be a subtle boost in happiness, “it’d be so tiny it’d be meaningless," said Jan-Emmanuel De Neve, an economics professor at Saïd Business School at the University of Oxford who studies well-being.

Still, the idea of a salary for maximum happiness is appealing.

Angus Deaton, the other author of the 2010 study and a Nobel laureate, said he thinks that part of the popularity of the $75,000 figure was that it seemed within reach for many people.

“Perhaps people like to think that the very rich don’t get that much out of it," he said.

Write to Joe Pinsker at joe.pinsker@wsj.com

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