Learn whether money or high income can make you happy, other factors that affect happiness, and how to increase your income in the hopes of also increasing your happiness.
Does Money Make You Happy?
While it’s true you can’t walk into a store and buy happiness, a 2010 study found a correlation between money and happiness. Daniel Kahneman and Angus Deaton’s study reviewed a 1,000-person U.S. survey regarding emotional well-being (the emotional quality of an individual’s everyday experience) and life experience (people’s thoughts about their lives). The duo found that emotional well-being and life experience are linked to happiness, but only to a point, and that emotional well-being only increases alongside annual income up to about $75,000. But now, a larger 2021 U.S.-based survey questions the $75,000 figure and the notion of a plateau. Matthew Killingsworth at the University of Pennsylvania found that those people earning higher incomes experienced feeling better daily, and greater satisfaction with life overall. Other studies focused on worldwide income and happiness yield interesting insights. A 2018 global sampling of 1.7 million people found that what the authors term “income satiation” occurs at $95,000 for life satisfaction. However, this satiation occurs later in the world’s wealthier regions, and incomes beyond $95,000 were still associated with lower life evaluations in some parts of the world. Income of around $60,000 to $75,000 was responsible for emotional well-being. As the authors point out, the findings “point to a degree of happiness adaptation, and that money influences happiness through the fulfillment of both needs and increasing material desires.” The study found that further increases in income were associated with reduced life satisfaction and a lower level of well-being. The authors posit that after this point, people may be chasing after material gains and engaging in social comparisons, which could lower well-being. The studies above show a correlation between income and happiness, but the 2021 study noted that some differences in results may lie in the way data is collected (in real time versus recollection). As well, money may matter more for some people than others, in different ways. For example, the 2021 study found a steeper association between income and well-being for people who equated money and success. For these people, there was no income level associated with greater experienced well-being. It’s clear that overall, the studies agree on one thing: Income affects happiness at least to a point, and for some people, earning more can increase well-being and life satisfaction. However, income isn’t the only factor affecting happiness, nor will the same amount of income affect everyone’s happiness in the same way. A couple of things still aren’t clear: We don’t know for certain how important money is to happiness compared to other factors, nor do we know how much money you need to be happy.
How Much Money Do Americans Make?
According to the U.S. Census Bureau, the median household income in the U.S. was $67,521 in 2020, a decrease of 2.9% from the previous year. According to the Census Bureau’s Current Popular Survey (CPS), about 46% of households have an income that exceeds $75,000. While the studies don’t suggest that it’s impossible to be happy making less than $75,000, they do imply that an increase in household incomes could improve the emotional well-being in those households, too. If the Princeton University study is accurate and there is a limit to how income can increase happiness, the limit won’t be the same everywhere. First, the median average income isn’t the same everywhere. The chart below shows the median average income by state. As you can see, incomes in some states are well below the national median, while incomes in other states are significantly higher. Not only do incomes differ across the country, but the cost of living varies drastically in different parts of the United States, and $75,000 doesn’t have the same value everywhere. For example, consider a homeowner living in Kalamazoo, Michigan. At $75,000 per year, their annual income would be considerably higher than the state’s median income of $63,829. But if that same person were to move to New York City, they would need an annual income of about $189,000 to maintain their standard of living, according to the Best Places Cost of Living Calculator. Housing costs 487% more in New York than Kalamazoo, while transportation costs 98% more. In this situation, it’s easy to see how someone earning $75,000 could have their happiness greatly affected by their income.
Other Factors Affecting Happiness
Other studies have looked at the role money can play in preventing poverty-linked factors that increase depression risk; how spending on others can promote happiness; income’s impact has on parental happiness; and how perhaps it’s someone’s comparative societal rank, not their income, that affects their happiness. While money is a factor affecting happiness, other schools of thought have different ideas regarding factors contributing to (or detracting from) one’s happiness. For example, some have pointed out that Maslow’s Hierarchy of Needs must be satisfied before happiness ensues. These needs start with basic physical needs including food, shelter, and clothing. Above that is security of employment and assets. The hierarchy’s social-life level involves love, friendship, and belonging. The fourth hierarchy’s esteem level includes self-worth. The highest level of the hierarchy is self-actualization or inner fulfillment. Some studies point to a specific predictor of happiness, while others find that many factors are intertwined. For example, the 2010 Princeton study exploring the relationship between income and happiness found that having a low income exacerbated the effect of already unhappy situations such as divorce and loneliness, and health problems such as asthma or headaches. So while money may not be the only factor affecting happiness, money can exacerbate other factors’ effects.
The Bottom Line
We may never know if there’s a limit on the amount that income can impact happiness. Money’s effect on happiness may end at $75,000, or there may be no income level at all. Either way, it’s clear that while money isn’t the only factor that affects our happiness, it is one important factor. Not only does money affect happiness, but it could also be an underlying factor in how much other things affect our happiness. This suggests that increasing your income through investments and other strategies can increase emotional well-being. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
