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Can Money Buy Happiness? $75,000 Income & Experiential Spending

We’ve all hear the age-old expression – “money doesn’t buy happiness,” but most people don’t know whether it’s really accurate. Some people believe that money is a key part of happiness, while others dismiss money entirely and believe that the best things in life are free. While anyone can make claims about money based on their subjective thoughts and beliefs, not everyone has scientific data to support their claims.

Emerging research demonstrates that in the United States, money does buy happiness, but it’s only up to $75,000 per year. Any earnings beyond $75,000 results in diminishing, insignificant returns in relationship to happiness. In addition to annual income, how you decide to spend your money also influences your happiness. Those who spend money on experiences as well as other people tend to be happier than people who are caught up in materialism.

Can Money Buy Happiness? The Research.

Fortunately, scientific research can give us a more accurate answer to the question of whether money buys happiness. The first study is derived from a large-scale survey given to 450,000 people in attempt to rate two important aspects of their well-being. The second study is more recent and determined how you spend your money can influence your emotions.

Research: Happiness and Income

Data collected by the Gallup-Healthways Well-Being Index between 2008-2009 examined 450,000 individuals to determine how finances influence a person’s well-being. They measured “well-being” based on two specific subtypes.

  • Emotional well-being: They refer to emotional well-being as the quality of a person’s daily experience. In other words, how often you would experience positive emotions (e.g. joy, happiness, pleasure) vs. negative emotions (e.g. anger, depression, stress, etc.). This was measured by specific questions about emotional experiences “yesterday.” So you would rate your emotional well-being based on how you felt the day before taking the survey.
  • Life evaluation: The second aspect of “well-being” is based on how the person perceives their life when they think about it. So in other words, if you were taking an objective look at your life, you’d decide whether you were happy with it or unhappy with it. This is more of a holistic perspective referring to how satisfied you are with your life rather than daily emotions. This was measured by Cantril’s Self-Anchoring Scale.

Results: A $75,000 annual income leads to greater emotional well-being.

Data was analyzed based on the 450,000 responses to determine how income influenced subjective scores of “well-being.” They discovered that both income and education were closely tied to life evaluation scores, whereas factors such as health, care-giving, loneliness, and smoking were more tied to daily emotions.

When the results were plotted against annual income, it was found that a person’s life evaluation steadily increases as income goes up. A person’s emotional well-being also increases as their income increases, but only until a certain point. The researchers found that emotional happiness peaks at an annual income of $75,000.

Individuals with lower incomes tend to have poorer life evaluations as well as poorer emotional well-being. Those with higher incomes tend to have greater life satisfaction as well as improved emotional happiness up to the point of $75,000. Researchers believe that lower income tends to amplify the emotional pain associated with crises such as: divorce, health problems, and/or loneliness.

The Ceiling Effect at $75,000

Just as some drugs have a ceiling effect, meaning the body doesn’t get any additional therapeutic benefit from exceeding a particular dosage, your salary also has a ceiling effect in regards to your subjective happiness. From a simplistic perspective, this makes a lot of sense: if you are struggling to find food or water, you’re probably going to be more stressed and unhappy with your current situation than someone who can afford whatever food they’d like. Many would also disagree that the happiest times of their life were when they earned a lot of money.

Researchers point out that “emotional well-being” is often confused with a person’s “life evaluation.” Earning over $75,000 does continue to increase scores of “life evaluation” but it doesn’t have the same impact on emotional well-being. The conclusion derived from the research by the researchers was that a lack of money brings both: emotional misery as well as poorer life evaluations.

Interestingly enough they also found the same results for “anger.” Therefore it is important to understand that if you are earning more than $75,000 – you are unlikely to experience greater emotional well-being, but you may be more satisfied with your life from a holistic perspective.

  • Source: http://www.pnas.org/content/107/38/16489.full.pdf+html

Note: It is important to realize that $75,000 shouldn’t be considered a “static” or “fixed” figure for happiness.  Some would argue that the amount required for happiness may increase in the coming years.

Global Perspective: Happiness “Income” in Other Countries

It is even more difficult to determine what an average income should be “globally” to produce happiness. According to the Skandia International “Wealth Sentiment Monitor” it appears that the global average income linked to “happiness” is approximately $161,000 for 13 countries that were surveyed. It should be mentioned that the United States was NOT among the countries that were surveyed.

This average doesn’t really mean much though, it’s based on combined data from different countries. A lower income may result in greater feelings of happiness in one country than another. Think about it like this: $161,000 may go a lot further in purchasing power in Country A than it would in Country B. It seems as though happiness as a result of income is dependent upon where you live and the people to which you compare yourself.

  • Dubai: $276,150
  • Singapore: $227,553
  • Hong Kong: $197,702
  • Mexico: $185,169
  • Italy: $175,825
  • Peru: $157,495
  • Brazil: $143,650
  • Colombia: $141,776
  • United Kingdom: $133,010
  • Chile: $128,679
  • France: $114,344
  • Austria: $104,477
  • Germany: $85,781

Cumulative average: $161,810

Keep in mind that this was based on a survey that was not nearly as thorough as the one conducted in the United States. The results from this survey in no way should be compared to the results derived from the United States survey which specifically accounted for measurements of “emotional well-being” as well as “life evaluation” for happiness. While it is certainly plausible that the income for happiness in certain countries may exceed that of the United States, direct comparisons cannot be made.

The results do shed some insight on the fact that feelings of financial “happiness” are based on the economy of our country as well as the cost of living. Someone living in Dubai wouldn’t consider $75,000 enough to buy happiness, whereas someone living in the United States would. The bottom line is that when you’re earning less than the majority of your country’s population, you’ll tend to have more trouble affording the resources it takes to feel happy.

Happiness and Spending Money: Buy Experiences Over “Things”

Researchers have also attempted to determine how you spend your money may influence your level of happiness. Key findings from this research were presented at a symposium called “Happy Money 2.0: New Insights Into the Relationship Between Money and Well-Being.” They discussed the effects of experiential purchases, abundance, lending, and how the wealthy perceive the concept of “well-being.”

Buying experiences: Researchers show that buying experiences leads to more long-term happiness than material goods. In other words, traveling or paying for a particular experience (e.g. scuba diving) is more likely to bring you happiness than buying an expensive dress, TV, video game, or car.

The anticipation effect: One reason that you may feel happier from an experience rather than a materialistic good is that it is often accompanied by anticipation. When you book a vacation or make future plans to “go somewhere” and “do something” you end up waiting with excitement for the particular event. The happiness associated with waiting for the arrival of a materialistic object is significantly less than that of an experience.

Recommendation: Researchers suggest that you may want to delay consumption of materialistic goods and focus on buying experiences if you want to increase your happiness. Rather than buying new clothes, shoes, or a TV – spend it on novel experiences such as: learning how to surf, learning a new language, traveling to a different country, or booking a reservation at a restaurant you’ve never visited.

  • Source: http://pss.sagepub.com/content/early/2014/08/21/0956797614546556.abstract

Having “less” may produce “more” satisfaction with the “little things”

Research from the Personality and Social Psychology Bulletin demonstrates that material and experiential wealth leads to a reduction in a person’s ability to enjoy the simple things in life. Having a lot of money may reduce the pleasure of your daily routine – you may come to perceive things as mundane and lacking novelty. The more likely you are to come from abundance (e.g. a wealthy family), the less likely you are to appreciate the little things.

Similarly, if you have a history of being broke, lacking financial resources, and haven’t come from wealth, it increases your ability to enjoy moment-to-moment experiences in your life. Even if you’ve come from nothing and now are wealthy, you’re more likely to appreciate what you have. It seems as though coming from wealth may make you desensitized to riches and less appreciative of novelty.

Lending money leads to unhappiness?

There’s also some evidence suggesting that if you lend money to someone and they spend it on something unnecessary (e.g. cigarettes), you’re more likely to become angry. If you plan on lending someone money, you should be aware that you may become angry if you find out that they spent the money you loaned them on a hedonic item.

To reduce the likeliness that you’ll feel unhappy as a lender, don’t loan someone money that has a track-record of irresponsible spending. It is more likely to make you (the person doing something helpful for someone else) unhappy. If the person makes a utilitarian purchase (e.g. gets their car fixed), the lender didn’t experience anger or unhappiness.

How Money Can Buy Happiness

The way you use money to buy happiness is completely subjective and based on your own perceptions. Some people may use their money to buy foods that promote physical and psychological health, while others may experience the most happiness from purchasing new experiences. Below is a list of ways in which money may help you buy happiness.

  • Education: When you have a lot of money, you can afford to get a better education than someone without enough money. The best teachers are generally the most expensive because they possess unique talents and abilities. Those that are able to get a better education have a better chance of landing a high-paying job, allowing them to earn enough money to stay happy. Those with poorer educations tend to be unhappier and feel more helpless or victimized by circumstances.
  • Environment: Having money can afford you the ability to customize your environment. If you want to move to a particular state or area of the world, you can. If you want to live in a house instead of an apartment, you can. In general, more money allows you to live in a safer, healthier community with less confinement.
  • Epigenetics: There is evidence that epigenetics influences our gene expression. This means that the environment that we live in and people we interact with turn “on” or “off” certain genes. For more favorable outcomes in genetic expression, spending time with people that are of a high earning level are more likely to be educating, motivating, etc.
  • Experiences: There is clear evidence suggesting that purchasing new experiences leads to greater happiness than having materials. However, if you don’t have the money to purchase new experiences, you may be left with the same mundane routine. New experiences don’t necessarily have to be expensive, but those with enough money can afford to learn and explore more of the world.
  • Healthy food: Most of the high-quality foods sold cost more money than average. Having enough money to afford organic vegetables, grass-fed beef, wild-caught fish, fruits at the peak of their ripeness, etc. can go a long way. Eating the best diet for mental health results in a better mood, improved cognition, and less health problems.
  • Medical care: Not everyone has access to the same quality of medical and dental care. Someone who has an ongoing health problem may decide to avoid treating it due to the fact that they don’t have enough money to pay for it. On the other hand, someone with a lot of money will be able to immediately take care of the problem and improve their situation.
  • Self-improvement tools: To improve the quality of your life, you should constantly be investing in self-improvement. Although most books and materials are relatively cheap, not everyone can afford what they need to improve their situation. Tools that are capable of optimizing physical and mental functioning (e.g.
  • Supplements: Not everyone can afford to purchase supplements to improve their quality of life. While an argument can be made that people don’t “need” supplements, many people find that certain supplements improve their functioning. For example, someone may decide that a high-quality fish oil may help their depression or nootropics may help further increase their earning potential.

Money is important, but other things contribute to happiness too.

People who are overly focused on earning a lot of money may not realize that other things play a role in influencing happiness as well. If you are overworking yourself to earn $75,000 – you may be stressed, not taking proper care of yourself, and could end up with major health problems as a result of improper self-care. In life, it is important to find balance and not make money the ultimate destination.

Money should be viewed as a companion, or tool to help you improve your quality of life as well as the quality of others. Many people view money as evil or some sort of competitive incentive to establish their status over others. Viewing money as a status symbol isn’t going to lead to happiness. By finding ways to provide value and contribute to the world, you can monetize that value, and use the money you earn to improve your quality of life.

It seems as though $75,000 is the magic number to strive towards in terms of financial happiness. You should understand that the way you earn the money may also influence the way you feel. If you are scamming people or feel as if you aren’t really providing $75,000 worth of value, that alone may trigger feelings of depression and/or anxiety. By contributing $75,000 worth of value to others and monetizing it, you should end up feeling happier.

Bottom Line: The Best Things in Life are Inexpensive

Although research has shown that money can buy happiness, I’d argue that most people are capable of earning enough to make themselves happy, however they prioritize the wrong things. Think of all the things that are unnecessary – that you don’t really need – that you still spend money on. Most people spend money on: TV, gasoline for their vehicle, a gym membership, unhealthy foods, unnecessary supplements, going out to eat, coffee, etc.

Valid alternatives to these things (that would arguably increase happiness) include: reading books, biking to work, exercising outside (or with a group), investing only in healthy foods, take a minimalist approach to supplementing, cook your own meals, etc. Things that lead a person to happiness are generally very reasonably priced and often times free. Off the top of my head, several things that can make someone happy are totally free including: meditation, exercising, socializing, volunteering, and getting sunlight.

Inexpensive things that can produce happiness include: reading books, playing sports (like basketball), and contributing to society. You don’t need $75,000 to make you happy. In fact, you probably don’t even need money to be happy. The research just shows that for most people, earning this much money tends to improve emotional happiness. However, without believing that you are contributing value that justifies your earning, you may end up more depressed than happy.

Also consider happiness from the perspective of choice: you can choose to be happy if you want. Similarly, you can opt to blame your lack of happiness on circumstances or finances. Ultimately you have the ability to consciously intervene on a particular feeling and attempt to create what you’d like to experience.

Do you believe money buys happiness?

Understand that although this is a large scale study, it cannot be assumed that the findings are universally applicable. Some people and/or societies may not need as much money to experience emotional happiness and/or an optimal life evaluation. In your experience, do you believe that money buys happiness? In your personal experience has $75,000 been enough to contribute to an increased quality of life? Feel free to discuss in the comments section below.

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