MONEY BUYS HAPPINESS—but it may not buy us very much. Indeed, no matter how much we earn and no matter what other steps we take to boost happiness, we may discover the impact is modest and fleeting.
That brings me to a recent academic debate. In 2010, Princeton University’s Angus Deaton and Daniel Kahneman noted that happiness, on average, didn’t appear to increase beyond an annual income of $75,000 or so—a finding that’s since been widely reported in the mainstream media. But in 2021, University of Pennsylvania’s Matthew Killingsworth contradicted that claim, saying there was no $75,000 limit. Instead, his research showed that happiness rose with income, though at a slower rate at higher income levels.
Who’s right? In a new study, Kahneman and Killingsworth collaborated, with help from Barbara Mellers, to resolve their conflicting findings. The upshot: They found that the 2010 study’s results were skewed by the least happy 20% of the population. Exclude these folks, and it seems rising income does, on average, lead to greater happiness.
“The suffering of the unhappy group diminishes as income increases up to 100k but very little beyond that,” write the authors. “This income threshold may represent the point beyond which the miseries that remain are not alleviated by high income. Heartbreak, bereavement, and clinical depression may be examples of such miseries.”
But here’s what I found most intriguing: While the authors found that more money typically boosts happiness, they also observe the relationship between income and happiness “is weak, even if statistically robust.” In fact, they go on to note that “the difference between the medians of happiness at household incomes of $15,000 and $250,000 is about five points on a 100-point scale.”
Think about that: A household with an income that’s well over three times the national average isn’t a whole lot happier than one living at or below the poverty level. Moreover, the original Deaton and Kahneman study suggests a quadrupling of income may have less impact on someone’s happiness than having a headache, being alone or suffering a chronic health condition.
Indeed, if we’re looking to boost our happiness, we should focus not just on money, but also on two other key areas. In his book An Economist’s Lessons on Happiness, Richard Easterlin—considered the father of happiness economics—discusses an unusual open-ended survey that social psychologist Hadley Cantril oversaw in the early 1960s in 13 countries—wealthy and poor, communist and not—where folks were asked what would make them completely happy, and also what would make them unhappy. “To me, these answers tell us what’s foremost in determining people’s happiness,” writes Easterlin.
So, what did folks in the 13 countries say? “Leading the list in every country are three items: economic concerns, family circumstances, and health,” Easterlin summarizes. “Mentioned most frequently, often by as much as 80% of the population, are things relating to one’s economic situation—concerns about the standard of living, work, or leisure time. Next in importance, cited by around 40-50% of the population, are matters relating to family circumstances—good family relationships and concerns about one’s children. Named just about as frequently are issues regarding the health of oneself and one’s family. Concerns about these three things—economic situation, family, and health—are by far the topics people most frequently mention when they are asked what’s important for their happiness.”
In other words, while getting a pay raise may boost our happiness, we might get just as much mileage from striving to improve our health or our relationship with family members. That said, even if we do these things, the net result may be modest—because there’s something that’s even more important to happiness than money, health and family.
At issue is our happiness set point. While we might do things that make us momentarily much happier, such as going on vacation or going out to dinner, it’s hard to raise our long-term, base level of happiness. It seems each of us has a happiness set point—a predisposition to be happy or not—that might account for as much as 80% of our happiness level.
The upshot: Getting in better shape or hitting some portfolio milestone might make us somewhat happier, but the effect will likely be marginal. That doesn’t mean we shouldn’t strive for such goals. I think we should all be thoughtful about how we lead our lives with an eye to boosting happiness. But if, the day after your boss tells you about the big promotion, you wake up feeling like your world isn’t a whole lot better, don’t be surprised.