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Unhappy Results

Jonathan Clements  |  February 6, 2021

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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