If you’ve been reading personal finance articles for a while, you’ve probably come across the different studies that compare one’s overall sense of happiness in relation to the amount of household income that they are able to generate. You may have seen Malcolm Gladwell’s figure about how the slope of money buying happiness is the greatest around the $75,000 mark, and then money is able to buy happiness at a much slower and slower pace after that.
I never paid a whole lot of attention to those types of studies because I’ve always had the gut intuition that money is a super big deal when it comes to the basics (shelter, transportation, food, etc.) and once you have those basics covered and a little walking around money in your pocket, then the quality of your relationships with others as well as sense of personal satisfaction and accomplishment with how you are choosing to fill your days would take precedent.
In terms of critiquing those types of “money buys happiness” studies, there are usually two problems with their methodology that prevent me from taking them seriously.
First of all, they focus on the quality of life based on the amount of money that your household makes, rather than adjusting for household spending. From a happiness evaluation perspective, there is a whole lot of difference between making $150,000 per year and spending nearly $150,000 per year compared to make $150,000 per year while spending $65,000 per year. I would think that what you do with your money, as well as how much of you spend, would have an effect on personal happiness just as much as how much is coming in.
The Charles Dickens character Mr. Micawber offered this pithy saying for happiness as it relates to finances: “Annual income twenty pounds, annual expenditure nineteen pounds, nineteen shillings, and six pence. Result: Happiness. Annual income twenty pounds, annual expenditure twenty pounds and six pence. Result: Misery.” Yet, it doesn’t look like Micawber’s wisdom travelled across the pond into the methodologies of American researchers, as the focus remains stubbornly on the amount of money generated to determine happiness without paying attention to the expense side of the equation in their analysis.
My other concern about those financial happiness studies is that they don’t adjust for the type of job that is creating the money, and how that could affect one’s happiness. Back in my undergraduate days, I had to write the check for the band that was playing at my fraternity on a Saturday night because the treasurer was out of town. When I was paying the band, I asked one of the guitarists if he was a musician permanently or if he had to do something else with his time. He volunteered that he made about $2k per month, and added that he loved it because he got free beer, a free place to stay, and would get to know a different woman every other weekend. The quality and personal satisfaction of his life making $24k per year is going to be a whole lot different than someone in his 60s scrubbing toilets at a large grocery story making the same amount.
Somehow, I would like to see these income happiness studies combined with those other academic studies that argue in favor of men and women owning their own businesses being the ones that experience the greatest amount of happiness. Does someone who makes $40k but owns her own business lead a happier life than someone who makes $100k per year but is considered a minion at his work? Does doing work where you are creating an irreplaceable product make you feel indispensable and therefore valuable compared to employment where you feel like another cog in the machine, and if not you, someone else will be doing that exact same work? My theory would be that the amount of autonomy that you have while you work (whether it is because you are an owner or are so good at your job that you are to your own devices) plays into your overall happiness levels, but these kinds of distinctions aren’t addressed in any of the happiness studies I’ve seen.
For me, it comes back to the intuitive basics. It’s about closing the gap between who you are right now and what your potential could be. It’s about creating close personal relationships where you honestly know that certain people give a damn about where you will be in ten years. It’s about filling your days where something gets created rather than merely being a placeholder, biding time. Unless you’re about to lose your house or have to wait until the Friday paycheck to eat, money will always play a secondary factor in determining overall happiness compared to relationships, realizing potential, and feeling as if you are creating something valuable.