You may have read that a Princeton University study by Deaton and Kahneman found that people were more satisfied with their life as their income rose, but only until about $75,000 a year. After that, higher income did not result in greater happiness. Doug Short of DShort.com extended this $75,000 number and adjusted it by the cost-of-living for all 50 states. The Huffington Post in turn converted that table into a nice pretty infographic map. I’ve mentioned this finding before and readers pointed out that $75k goes farther in some places compared to others, so it is shared below.
Money can only buy happiness up to a point. But just how much you need to get to that threshold really depends on where you live, according to a new analysis by Doug Short, vice president of research at investment group Advisor Perspectives.
Short’s analysis found that if you live in a place like Hawaii, where the cost of living is relatively high, a household needs to make $122,175 per year before some extra cash doesn’t really translate into more happiness. In Mississippi, by comparison, the threshold at which more money stops making you happier is a lot lower: $65,850 per year.
Of course, the next link on HuffPo was… More Money Always Leads To More Happiness: Study
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I don’t think this realistically accounts for ‘nuclear’ families (husband, wife, 2.5 kids). I’m in Atlanta, single, no dependents and I’d be fine here by myself on $70k per year, but this says household income. It would be rough for a family of 4 to pay a mortgage, save for retirement, save for college, go on vacations, maintain 2 cars, etc.
I think this is the point of the study. Above a certain income level a third to half of your marginal dollar earned goes to income taxes, plus you need to save for retirement (SS is no longer adequate to support your lifestyle the way it may at a lower income point) and college (you no longer expect to be eligible for financial aid). So there is a lull where extra earnings are not getting you much more utility. I would argue there is a point where you emerge from that lull, but that is probably only applicable to the top 10/5/3/1% of earners, so it isn’t relevant to most people who read this study.
I would also argue there is a similar lull or negative part of this curve way down at the lowest income levels. People who are below the poverty line start to earn more and similarly lose eligibility for direct transfer payments like EITC and food stamps. Probably somewhere between $10k and $20k per year a household is actually worse off earning more because for each dollar they earn they lose dollars from multiple safety net programs that all apply the same income limits.
Andy, I respectfully disagree. This isn’t about marginally higher tax rates or losing eligibility for SNAP. They took a $75,000 figure and then adjusted for state level cost of living. Most of that is housing costs and a little bit is state level taxes. But its mostly housing. Look at Alaska which is virtually tax free at the state level.,.,. they pay citizens a dividend.
My comment pertained more to the original Kahneman study than the state-specific update in this post as I was responding to Ross’s comment, which dealt with the original study.
Ross, If you think that would be rough I guess if you come to NYC to live you would not exist. There are tons of folks up here including myself living your example and making it work wishing they could benefit from what you get from your neck of woods. In Atlanta the price of a house is what most folks put down for a down payment here in the north. Your total car insurance is probably just a little more we pay for just one monthly payment not to mention grocery’s are much lower. etc etc.
Not saying this in a mean way but just finding it funny.
I haven’t really bought the idea that rich people are not happier than poor people. I understand theres diminishing returns but I dont’ think it hits a wall at $75k or $100k. I mean I know that having more money to do what I want and feel secure would increase my happiness. Of course its all about what you want in life but generally Americans do want more money.
There was another study I recently saw in a Slate article that had poll results showing the more money people made the higher % were happy.
Slate article : “Money Buys Happiness, and Other Brief Lessons About Life Satisfaction in America”
Study title is : “Subjective Well-Being and Income: Is There Any Evidence of Satiation?”
@jim
the trick here is defining happiness. Reality often isn’t what we expect. We can say things like “I’d be much happier with 50% more income.”, but exactly WHY you would be happy is sometimes difficult to say; and then, when you actually get it, you might realize the extra happiness wears off. That’s what these studies are trying to get at.
Personally, I hit a plateau long ago. Enough money to save well above the average amount for retirement; buy gadgets/toys I *use*, and take trips to fill my vacation days. I spend plenty, but I’ve never been one to buy things just to have them. But I don’t make/have enough to just quit working and not care. Far from it, so I’m smack in the middle of the lull zone.
A 50% raise would likely make me 0% happier. It would need to be something like 250%, which would make me see the possibility of retiring way earlier. But I likely wouldn’t actually spend anymore day to day.
I think we’ve found another key part of this issue. Those who are earning below the threshold uniformly believe that more money will mean more happiness, and they are correct at least for their situation, because they are still living in the upward-sloping part of the utility/income curve. Those earning well above the happiness staleness income threshold realize that their marginal happiness from an additional dollar of income is much lower, again based on their own experience.
Another very important part of this equation is hedonic adjustment. Once most of our immediate needs are satisfied, we may consume more but it doesn’t take long to feel like that additional consumption didn’t get us anywhere even if in truth it does make us feel “better,” it’s just that our “better” now feels the same as we used to feel.
Personally if I got a 10% raise today I would feel maybe 1-2% better. Half of it would go to income taxes. I would save most of the remaining 5% and feel good about putting away more in our 529s and in our savings account. My wife may spend a little more as a result of that raise, and that’s about it.
“I mean I know that having more money to do what I want and feel secure would increase my happiness.”
This statement is false. It should read “I THINK that having more money…”
That is the whole point of these studies. People think that more is always better, more is only better to a point. After that it doesn’t “hurt” but it doesn’t substantial help either. Once you cover your basic needs and a little entertainment to be comfortable, happiness ultimately comes from relationships. And relationships can often suffer the richer one is as it can attract “false friendships”.
This is pretty interesting, I am quite curious how those values compare to the cost of living in those areas.
I am actually quite surprised with the numbers and how they play out. I have always been a firm believer of the cliche saying of money can’t buy happiness. Although there are times when I like to think that, in the end I don’t believe money can solve all problems.