We're guilty at LearnVest of spouting the following scientifically proven (or so we thought!) wisdom about money and happiness: You need a certain amount of dough--$50,000, on average--to be happy.
But once you have north of $75,000, you won't see much of a noticeable difference when it comes to your happiness quotient. The thought that a joyous life doesn't necessarily lie in a bigger paycheck is comforting, right?
Well, it turns out that money does buy happiness--statistically, anyway. According to new research conducted by economists from the University of Pennsylvania and the University of Michigan:
- Richer countries are happier than poorer countries
- Richer people are happier than poorer people who live in the same country
- Countries grow happier as they become richer over time
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Get started with a free financial assessment.
What We Once Thought ...
The prevailing view on money and happiness was popularized in the 1970s by researcher Richard Easterlin, who claimed that it was certainly better to be rich than poor (of course). But his research also found no statistical proof that, among rich countries, happiness rose with rising income--suggesting that happiness plateaus at a certain point.
The cause of this was thought to be a keeping-up-with-the-Joneses effect. That is, it's all about relative income, not absolute income. So although everyone in America can afford a TV and air conditioning, having these items is such a normal thing that it doesn't contribute to your happiness--especially when your neighbor's TV is 20 inches larger.
This was essentially the party line for the next 48 years.
The Research That Could Change Our Thinking
According to a new study, it turns out that there's a lot more to it. When Daniel W. Sacks and Justin Wolfers of the University of Pennsylvania and Betsey Stevenson of the University of Michigan dug into the data anew, they found something very different than what Easterlin had found.
Easterlin didn't have access to the kind of information that we have today, such as the yearly Gallup World Poll that asks about well-being and precise GDP measures that span decades for dozens of countries and millions of people. In fact, Easterlin looked at such a small sample of countries that it's not entirely surprising that he couldn't find statistical proof that happiness rises with income.
Here's what the new research shows to be true:
Richer Countries and People Are Happier
When you plot residents' satisfaction with life against the per-capita GDP (spending power per person), it yields this graph:
Unfortunately, the paper does not provide a key to the points scattered around the line. (Is that Zimbabwe over there on the left, beating the odds at $160 per-capita GDP? Somebody should do some research on that.) But what it does make clear is the relationship between money and happiness.
Translation: Yup, richer countries tend to be happier.
Now look a little closer at the graphic. At the bottom, each notch denotes a doubling of per-capita GDP, not a steady increase. What this means is that every increase in income isn't as valuable as the one before it. As the researchers explained, "going from $1,000 to $2,000 raises satisfaction by twice as much as going from $2,000 to $3,000 and by the same amount as going from $10,000 to $20,000."
So if you made $300,000 a year, you'd likely say "meh" about a $10,000 raise. But if you brought home just $40,000, you'd be happy with that same income increase.
That's Not to Say Happiness Stops Growing
There was another fascinating chart inside the study, where researchers plotted income against happiness for the top 25 most populous countries. You'll see that, in every single country, happiness steadily increases with income.
But the most surprising finding in the chart was the lack of a "satiation point"--the income level at which more money doesn't matter anymore. Yes, each raise won't be quite as exciting as the one before, but it still increases happiness. Take a look for yourself ...
See: There's no plateau in happiness--and certainly not at $75,000.
Culture Plays a Part
You would think, intuitively, that some cultures would be more equipped to find happiness in income than others--say, countries that are more (or less) religious or those with a culture that believes in a Protestant work ethic. But with all the countries' happiness levels running parallel, researchers found that it doesn't matter what language you speak or what continent you live on--income affects happiness in the same way.
Well, except for one culture.
It seems that Americans are doing something wrong. "GDP has approximately doubled since 1972," the researchers pointed out about the U.S., "and wellbeing, as measured by the General Social Survey, has decreased slightly." Yup, America is certainly exceptional--but not in a good way.
The researchers posited that this was the case due to our increasing wealth inequality. So while our income and GDP is overall increasing, fewer Americans are sharing in that wealth--leading to increasing unhappiness.
But before you up and quit your job teaching art to preschoolers in order to get an MBA, we'd like to point out one important thing: This research can help world leaders make policy decisions regarding taxes and economic growth. But it doesn't account for the differences amongst people with equal income--it just shows a tendency.
Some people handle increasing income well, using it as a tool to increase their happiness (Oprah comes to mind). Others, not so much--such as certain movie stars and football players. In fact, an interesting essay that came out this week says true wealth is just living within your means and being able to do what you love.
So when it comes to living richly, riches do matter. But so does your attitude.