What's the Magic Number? Exploring the Relationship Between Money and Happiness

We've all been told that we need to make at least $75,000 a year to be happy, and any income beyond that won't bring more happiness. This belief is based on a 2010 study from Princeton researchers Angus Deaton and Daniel Kahneman. However, recent research by the same team has refuted this claim, and it's time to rethink the relationship between money and happiness.

The Original Study: Happiness Plateaus at $75,000

The 2010 study by Deaton and Kahneman concluded that emotional well-being rises with income, but there is no further progress beyond an annual income of $75,000. This narrative resonated with a lot of people, as 47.7% of households in America had an income of more than $75,000 per year.

However, new research has shown that the original study might not have been accurate.

Rethinking the Relationship Between Money and Happiness

Daniel Kahneman, one of the original researchers, has conducted new research that refutes the 2010 study. The new study was prompted by a researcher named Matthew Killingsworth, who argued that the original study relied on "remembered feelings" rather than real-time data on people's happiness levels.

Killingsworth's study used smartphones to collect real-time reports of experienced well-being (happiness) and found that larger incomes were robustly associated with both greater experienced well-being and greater life satisfaction. There was no observed plateau in happiness, as seen in the original study.

Quantifying Happiness

The new research also found that there was an "unhappy minority" – about 20% of the participants – for whom more money wouldn't change their happiness level at all. On the other hand, there was a group termed the "happiest 30," whose feelings of well-being sharply accelerated once they earned over $100,000 per year.

The Stopping Point: How Much Money Do We Need to Be Happy?

The new study found that the pattern of more money equating to more happiness exists for incomes up to $500,000 per year, but the exact stopping point remains unknown due to a lack of data points for people making over $500,000 a year.

The Key to Happiness: Perspective and Gratitude

It's important to remember that happiness is not a binary state, and it can live on a scale. Perspective and gratitude play a crucial role in our happiness levels. It's easy to focus on what we don't have, but it's essential to recognize and appreciate the things we do have.

Ultimately, the relationship between money and happiness is complex, and the answer to how much money we need to be happy will differ for everyone. However, it's clear that the original claim of happiness plateauing at $75,000 per year is not entirely accurate. As we navigate life and our finances, it's essential to focus on cultivating gratitude, perspective, and overall well-being.