How Much Happiness Does Money Buy, Anyway?

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.


Originally posted 2014-10-03 08:00:21.

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6 thoughts on “How Much Happiness Does Money Buy, Anyway?

  1. scchan_2009 says:

    I fully agree with your sediments. A lot of people really need to think about what they do in life. The role of money is being the facilitator. Tim, I think one time you wrote that money give you the chance to treat everyone in a coffee, or bar or restaurant (I forgot); I think it was a beautiful statement that you made.
    I am lucky enough to travel quite a bit. I do not really feel Americans, on a relative sense, are the happiest of people. Europeans are clearly happier. People were nice, well off, well educated, and knows how to enjoy themselves with true enjoyments of life (like leisure sports and raising family) in many parts of Central and Northern Europe with a lower GDP per capita and higher taxes. 
    Yet education and egalitarian societies don’t always leads to happiness. I have been to Japan a few times. While Japanese society is highly uniform with world-class education and low wealth disparity (lower than US), people there are not necessary happier (especially in cities). Work hours are very long with often long commutes (I knew someone who travel 2 hours per day in one direction to get to work; how could any one enjoy their career if that is how it is?). Many working parents don’t even got much time to see their children. Like US, I feel Japanese society is quite materialistic where “happiness” (if that is happiness at all) is decided too much by what you own and not by what you do. Keeping up with the Jones is a bliss. In fact, it is probably more fun to do things differently than the Jones!

  2. scchan_2009 says:

    I think I have used the word bliss incorrectly (excuse my English). I should have said “keeping up with the Jones” is a terrible idea.

  3. says:

    scchan_2009 Steve, you are correct. The hurdle is this: Social proof is the most powerful force that affects the human condition. Some people have naturally better, or train to have better, inner score cards than others, and this makes it easier to pursue what actually makes them happy rather than what other members of society say should make them happy. 

    The more material success you have, the easier it is to have your behavior deviate from normal. Society reacts differently when a man they know to possess $100 million does something unusual compared to when a homeless man engages in the same behavior. Society will react differently to a trim man with a beautiful woman on his arm wearing a pink coat, pink tie, pink shirt, pink pants, and pink shoes compared to an unshaved man, alone, carrying an extra seventy-five pounds, wearing the same thing. Unusual behavior tied to someone perceived as successful will be tolerated, and even appreciated by society, much better than someone who doesn’t appear to have “made it” yet.

    The problem? We spend a good chunk of life on 20, 30, 40, 50, 40, 30, 20 yard-lines on the path to success–close, but not quite there! Best to come up with a formula that defines success internally rather than externally if you want to be happy along the journey. For me, a lot of it comes down to recognizing the human condition as it is. Very few people get it right when it comes to who to emulate and grant hero status, using attention-grabbers as a proxy for success. If the members of society judging you have needles in their eyes, why define yourself based on what they see?

  4. Keith Morris says:

    “Money is not the most important thing in life, but it is reasonable close to oxygen” Zig Ziglar, motivational speaker

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