Can Money Buy Happiness? (If you make close to $75,000 a year, yes, it can.)

September 21, 2010

Does money buy happiness?  We all have our own answers to this commonly contemplated question, depending not only on our incomes but also on our individual histories and the meaning of money in our lives.  The question of whether money buys happiness is actually many questions at once:  How do we assess our happiness in general?  By what means do we make use of our money and how does this correlate to our sense of well-being?  What was the role of our parents’ money in our childhood experiences, and how did that imprint upon us?

In a recent study put out by the Center for Health and Well-being at Princeton University, Nobel Prize-winning psychologist Daniel Kahneman and Angus Deaton have reviewed the responses of 450,000 Americans and concluded that there is a direct correlation between money and some forms of happiness, at certain income levels.

In seeking a possible correlation between money and well-being the authors sought first to differentiate between two forms of happiness – “emotional well-being” and “life evaluation” – and then to plot income levels against these determinants.  (Emotional well-being refers to the qualify of an individual’s everyday experiences.  Life evaluation relates to the thoughts people have about their life when they think about it, i.e. “How satisfied am I with my life?”

The authors observed striking differences in the relationship of these two forms of well-being to income level.  The bottom line?  Not unexpectedly, a lack of money can exacerbate the affect of adverse circumstances (divorce; ill-health; loneliness) and interfere with ones ability to be happy.  Notably, however, beyond $75,000, higher income is neither the road to happiness nor to the relief of unhappiness.  Both varieties of happiness increase with income, but only up to $75,000.  Beyond this income level there is no improvement whatsoever in the quality of ones life (emotional well-being) while there is a marked increase in ones over-all sense of success, or life evaluation.  (In fact the authors found that the sense of general life satisfaction rises steadily with the rise of income.)

I believe these findings have much to offer us when we think about our money and whether or not it makes a difference in our lives.  For individuals below the $75,000 income threshold, it is perhaps a question of finding and using other tools which would act as a counterweight to life’s challenges and soften the affects of adverse circumstances.  These include deeper elements such as love of and from family, work contentment and spiritual connection, along with the more nuts and bolts factors such as budgeting, saving, and having the ability to prioritize needs vs. wants vs. wishes.  In essence, learning and then mastering the ability to live within ones means.

For people earning more than $75,000, the take away is interesting on several levels.  If we are to believe the results of the study, a $75,000 income (per individual) would provide the necessary means for emotional well-being while establishing that anything above this amount does not necessarily make you happier.  Indeed, there is some evidence it could make things worse.  A recent study in the Journal of Psychological Science (May 18 2010) entitled Money Giveth, Money Taketh Away provided evidence of a possible association between high income and a reduced ability to appreciate small pleasures.

Kahneman and Deaton have postulated that perhaps $75,000 is a threshed beyond which further increases to income no longer improve a persons ability to improve their emotional well being, such as spending time with people they like and enjoying leisure time.  The increased ability to “purchase” positive experiences may also be offset by some negative effects common to higher wage earners, including stress, competitiveness, time constraints, high expectations and time away from family.

The lesson for me and for my clients is simple, in concept at least:  become active in the exploration and discovery of what contributes to your well-being (both the simple and the profound) and then look for the connections that your money has to these things.  I have worked with many clients who at one time or another experienced blocks in deploying their money towards enjoyable experiences that would have impacted upon their well-being.  There is no easy explanation for these blocks, but through a bit of effort and planning they can be discovered, and conquered.

Money may not buy happiness entirely, but the money each of us has does have the potential to provide sustained well-being.  The more planning and intent we apply to how we use our money and how that impacts upon our daily lives, the “happier” we will be.  It is an effort worth undertaking.

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