We’ve all heard the time-honored phrase “money can’t buy happiness.” On the other hand, some people think that money is the main way to achieve happiness, drawing a direct connection in their mind between wealth and satisfaction, perhaps sacrificing the prime years of their life to relentlessly pursue the accumulation of cash. So, which one of these attitudes reflects what we know about actual psychology? As it turns out, the real answer is somewhere in between.
The consensus of the research is that, yes — to an extent, money is a predictive factor for happiness. However, they found that money can only influence overall happiness to a certain extent. Even more interesting is the determination from the study that increasing wealth does raise satisfaction, but only to a particular dollar amount, at which point the increased wealth appears to give diminishing returns. In other words, going from $30,000 per year to $70,000 per year will improve a person’s happiness exponentially more than going from $100,000 per year to $200,000 per year.
This idea runs parallel to the long-understood psychological phenomenon of the “hedonic treadmill,” which suggests that once we attain a new standard of happiness, wealth, or success, that benchmark quickly becomes “the new normal”… and sets us right back to our usual mental state, just like running on a treadmill and getting nowhere.
Purdue University measured the idea of money and happiness in two different ways: “life evaluation,” or the self-perception of how one is doing status-wise; and “emotional well-being,” which measured more traditional ideas of happiness and contentment. For life evaluation, they found that peak satisfaction occurs at the $95,000 per individual/per year mark; and for emotional well-being, the peak seems to be between $65,000 and $75,000 per year.
The researchers have several insights into these thresholds. For starters, take a look at the “life satisfaction” number. This metric typically has to do with self-assessment and the determination of where one fits in the social and fiscal hierarchy. Now, whether that type of self-assessment as a determining factor of happiness is actually appropriate or not is another story… but the researchers find that just shy of 100k per year is the sweet spot for ego gratification. They posit that below that figure, individuals feel they can’t live as lavishly as their peers; and beyond that figure, they enter a new tier of wealth where it becomes increasingly difficult to compete with their new financial peers, diminishing “happiness” as a result.
On the other hand, emotional well-being looks to peak around $75,000 per year of income. This, the researchers suggest, is a level of earning power that affords some fairly decent comforts and freedoms for the earner. Yet, it’s not so much money that a person can get sucked into a cycle of “keeping up with the Joneses,” or conspicuous consumption that results in a soul-sucking cycle of needless purchases and sticker shock.
Ultimately, what these findings are saying is that everything is best in moderation, including possibly seeking to maximize your take-home earnings. Truly, with more money comes more problems; which comes with more stress, and more desire to spend. It’s a vicious cycle. For maximum happiness, the middle ground might just make you the most content after all.