How much money do people need to be happy?

A display of wealth. And of happiness?
A display of wealth. And of happiness?
Image: Jordan Strauss/Invision/AP
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Take three people. All are unmarried, 33-year-old women who live in the United States. One makes an annual salary of $40,000, another makes $120,000, and the third makes $200,000. Who do you think is the happiest?

According to a recently released study (paywall) in the burgeoning field of happiness research, the two higher-earning women are likely to report more satisfaction with their lives than the one who makes $40,000. But, perhaps surprisingly, the psychologists who conducted the study find that the one making $200,000 is probably no happier than the one making $120,000. This is because both the $120,000 and $200,000 women have incomes above $105,000, which according to their research is the point at which greater household income in the US is not associated with greater happiness. The technical term for this cutoff is the income “satiation point.”

The study is based on a life-satisfaction survey conducted on over 1 million people as part of the Gallup World Poll. Respondents across the world were asked to rate their lives on a scale of 0-10, where 0 is the “worst possible life” and 10 is the “best possible life.” (This author would give himself an eight.)

The researchers analyzed the relationship between this score and household income. They find that in every region of the world, after accounting for a person’s age, gender, and marital status, people with higher incomes are happier. But they also find that there is a level of income at which happiness no longer increases with more money. This varies by region, with Australia and New Zealand the highest and Latin America and the Caribbean the lowest. They even find some evidence that in certain places, when incomes rise above the cutoff level, life satisfaction gets lower.

The chart below shows the “satiation point” for different areas of the world. The incomes are converted to US dollars and adjusted for variations in spending power across countries.

These psychologists, from Purdue University and the University of Virginia, are not the first to study how income relates to life satisfaction. In 2010, the Nobel prize-winning duo of economist Angus Deaton and psychologist Daniel Kahneman, famously found that the satiation point for US households was about $75,000 (about $84,000 in 2016 dollars). This new research improves on Deaton and Kahneman’s work, because the data is able to account for the number of people in a household, has more detailed income numbers, and includes responses from many more countries.

Dan Sacks is an economist at Indiana University who studies the relationship between income and subjective well-being. He tells Quartz over email that he finds the new research compelling, but far from definitive. The primary strength of this paper, Sacks says, is that the researchers have access to a huge dataset that, unlike many previous studies, includes a large number of high-income people. His main concern is that the research relies on flawed survey questions.

The surveys rely on self-reported income, and previous research shows that just because people say they make a certain amount of money, it doesn’t mean they actually do (pdf). “It could be true that on average, people who say they have income of $150,000 are no happier than people who say they have income of $100,000,” writes Sacks. “But I’m not convinced that people who actually have income of $150,000 are no happier than people who have income of $100,000.” Also, it’s possible that rich people have a tendency to underemphasize their happiness compared with poorer people.

People also tend to answer questions about their happiness differently on different days. While a person’s answer on any given day is predictive of what they say a month later, it’s not that statistically robust. Today, I say my life is an eight, but ask me tomorrow and it might be a seven. This measurement error makes it difficult for researchers to assess the income-happiness relationship with great accuracy.

But let’s assume that the research is right, and there is some point at which higher incomes don’t predict greater happiness. Does that mean that if you already make $120,000, you wouldn’t be happier with a $30,000 raise?

Not at all. Research suggests that the average person who makes $150,000 is no happier than the average person who makes $120,000. But it could be that the sort of person who makes $120,000 is different in some fundamental way from the sort of person who makes $150,000. Perhaps, the people who make $150,000 would be less happy if they made $120,000, so their satiation point is higher than the sort of person who is happy with $120,000 and doesn’t want for anything more.