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Unhappy Results

Jonathan Clements

HAPPINESS RESEARCH fascinates me—and I’m not alone. Many of the insights uncovered by economists and psychologists have caught on with the general public, influencing countless life decisions.

Do you favor experiences over possessions? Do you strive to keep your commute short? Do you pause occasionally to ponder the good things in your life? Whether you realize it or not, you’ve likely been influenced by happiness research.

But it turns out that there are two popular insights that we need to unlearn—because they haven’t held up to close scrutiny:

  • Have you heard that happiness caps out at an income of $75,000 a year?
  • Have you heard that 50% of life satisfaction is determined by our happiness set point and 10% by our life’s circumstances—which means the remaining 40% is up to us?

Both ideas are appealing. We like the idea that those with far higher incomes aren’t necessarily happier. We like the idea that we have plenty of room to improve our own happiness. That likely explains why these two notions have become so popular. But two recent studies suggest neither may be true.

Capping out. Happiness research traces its origins to a 1974 study by economist Richard Easterlin. He found that, while the standard of living in the U.S. and elsewhere had climbed over time, reported happiness hadn’t. It seems we care less about our absolute income and more about how we compare to others. This trend has continued, with happiness levels barely budging in the U.S. over the past half-century, despite our rising standard of living.

Does that mean that those with lower incomes are destined, on average, to be less happy? A 2010 study offered hope. It found that, while folks with higher incomes were more likely to express satisfaction with their life, earning a huge income didn’t necessarily result in greater day-to-day happiness. In fact, the study found that, on average, day-to-day happiness capped out at around $75,000 in annual income and didn’t improve if you earned more.

But just released research debunks this finding, and convincingly so. The new study involved more than 33,000 working-age Americans, who—using an app—were queried regularly throughout the day about their feelings, offering a real-time look at their emotional state. It turns out that happiness doesn’t cap out at $75,000, but instead keeps climbing.

To be sure, the new study didn’t find that happiness rose in lockstep with raw income. Instead, the gap in reported well-being between folks earning $20,000 and those earning $60,000 was similar to the difference between a $60,000 household and one that earns $180,000. The implication: As income rises, it takes more and more money to make a noticeable difference in well-being. Still, more dollars did help.

Does this mean money definitely buys happiness? Conceivably, the causation could run the other way: Maybe happier people tend to earn more. The results could also partly reflect a “focusing illusion”: Higher-income participants in the study, knowing they’re relatively fortunate, might have been more inclined to give positive responses when asked about their emotional state.

Even if the results hold up to further scrutiny, and I suspect they will, we’re talking here about averages. The ornery old guy down the road may indeed be rich and miserable. Moreover, while money may bolster happiness, it’s hardly the only ingredient in a happy life. Other factors—notably the state of our health, the robustness of our social network and how we choose to spend our time—are also crucial.

Boosting happiness. A 2005 study offered a compelling way to think about happiness, all captured in a simple pie chart labeled, “What Determines Happiness?” The chart had three slices: set point at 50%, circumstances at 10% and intentional activity at 40%.

In other words, 60% of our individual happiness might be the result of a genetically determined set point and difficult-to-change life circumstances—things like where we live, what job we have and how much we make. But, the study contended, the other 40% depends on how we choose to lead our life.

Not surprisingly, this notion was eagerly embraced, especially by the self-help movement. Happiness, it seemed, was within our control. But is it? A 2019 study argues there may be less room for improvement than the earlier research suggested.

The 2019 study’s authors write that, “The idea that individuals’ life circumstances account for only 10% of the variance in well-being seems to be based on a misunderstanding…. Likewise, there is only very limited evidence to place the figure for the heritability of well-being as low as (precisely) 50%. Consequently, there is little reason to believe that 40% is a reliable estimate of the variance in chronic happiness attributable to intentional activity.”

The bottom line: We don’t have as much control over our happiness as we’d like to think. But that doesn’t mean we can’t boost our happiness a little by, say, volunteering, making more time for friends and family, avoiding unnecessary financial stress and favoring experiences over possessions. Such steps may be life enhancing, but we shouldn’t kid ourselves: They probably aren’t life altering.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.

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medhat
medhat
7 months ago

Very familiar with the oft-quoted $75k number, less so with the happiness set point. Strongly agree that it’s heavily influenced by a confirmation bias, that it’s consistent with what we WANT to believe, not necessarily something fact/data based. Throwing around similar behavioral psychology theories like they’re water, the downside I see is that these bon mots can “anchor” people into thinking they’re somehow constrained to these notions, like “gee, why aren’t I happy, I make > $75k”, or “I can’t be any happier because it’s out of my control”. But that probably reveals my own bias, a general adage that a lot of happiness derives from agency, that we can indeed have a measure of control over our own fates. Best concrete example I can give is with a number of colleagues most of whom earn much more than me. Commonly I hear of their job dissatisfaction, but that they can’t change jobs/careers because of this or that reason, when in fact over time they’ve acquired so many ongoing expenses that it would be a challenge to unwind. But to my eye, that’s a choice made over time, and if suitably motivated, people can still choose differently.

parkslope
parkslope
7 months ago

The Killingsworth study is very interesting.
However, Stevenson and Wolfers (2013) reached the same conclusion in a more comprehensive study that appeared in the American Economic Review.
Many scholars have argued that once “basic needs” have been met, further rises in income are not associated with further increases in subjective well-being. We assess the validity of this claim in comparisons of both rich and poor countries, and also of rich and poor people within a country. Analyzing multiple datasets, multiple definitions of “basic needs” and multiple questions about well-being, we find no support for this claim. The relationship between well-being and income is roughly log-linear and does not diminish as incomes rise. If there is a satiation point, we are yet to reach it.
https://www.aeaweb.org/articles?id=10.1257/aer.103.3.598

There is also interesting research that suggests that happier adolescents grow up to earn higher levels of income, which raises questions about the direction of causality.
Much research has found that richer people tend to be happier. However, relatively little attention has been paid to whether happier individuals perform better financially in the first place. This possibility of reverse causality is arguably understudied. Using data from a large US representative panel, we show that adolescents and young adults who report higher life satisfaction or positive affect grow up to earn significantly higher levels of income later in life.
https://www.pnas.org/content/109/49/19953#:~:text=Using%20data%20from%20a%20large,of%20income%20later%20in%20life.

Jonathan Clements
Jonathan Clements
7 months ago
Reply to  parkslope

Thanks for the summaries and links to the two studies. Both are fascinating.

David Baese
David Baese
7 months ago

Jonathan – I am going to take the crazy risk of disagreeing with you. Years ago I decided that the breakpoint for happiness was about the top of the 15% marginal tax bracket. Then I discovered that the Nobel prize laureate behavioral economist Daniel Khaneman came up with about the same number. At about that 75k number all your basic needs are met. Feel free to shred my opinion. I’m sure I deserve it. – Dave

Jonathan Clements
Jonathan Clements
7 months ago
Reply to  David Baese

An annual income of $75,000 may indeed be where your happiness caps out. But the new research says that, for the broad population, there is no cap.

wtfwjtd
wtfwjtd
7 months ago

My late father used to say that there were few situations we face in life that couldn’t be improved by throwing a little time and (sometimes a lot) of money at them. Maybe personal happiness is one of those; it only makes sense that the more resources we have at our disposal, the greater our chances of success. I’m sure there are diminishing returns at some point, but still returns to be had nonetheless.

David Baese
David Baese
7 months ago

Jonathan – That may be because we all have different “comfort levels,” and we live in different places that have enormously different costs of living. But I do believe that 75k should cover the bottom of Maslow’s Pyramid for just about everyone. I might be wrong, but I don’t think so. – Dave

Gary's Shrink
Gary's Shrink
7 months ago

Unless the studies adjusted for cost of living, they’re of dubious value when comparing the happiness of somebody earning 75K in say New York city vs someone earning 30K in Des Moines.

David Baese
David Baese
7 months ago
Reply to  Gary's Shrink

I totally agree with you.

johny
johny
7 months ago

as far as I know, in order to know happiness, we need to have gone through sadness. If we accept the logic that sadness and happiness are two sides of the same coin, the way to experience even more happiness is not to make more money, but to experience that much more sadness. So to ask for more happiness is to ask for more sadness….so becareful what you ask for.

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