How Much Money Does it Take?

It’s $75,000 a year – according to the Wall Street Journal.

The newspaper reported on a study that set out to measure the relationship between income and happiness:  “As people earn more money, their day-to-day happiness rises. Until you hit $75,000. After that, it is just more stuff, with no gain in happiness.”

According to the study, happiness or “emotional well-being” is somewhat different from “satisfaction with one’s place in the world.”  That is, ambition and pride may demand that you earn many times that amount to stand apart from your neighbors or to satisfy a childhood dream.  That craving might take millions to satisfy.  But for just living your life, the study suggests, $75,000 is enough.  (See, “The Perfect Salary for Happiness: $75,000.”)

Economist Angus Deaton reached this conclusion with psychologist Daniel Kahneman after reviewing survey data from Gallup polls in 2008 and 2009.  Details about the study were not included in The Journal’s account, but the authors seemed to rely on what people said, not on observed behavior.

The Journal’s reporter wondered if this figure held true in different cities where rents can skyrocket and the cost of living can vary dramatically.  I wonder, on the other hand, if people really know what they need or want, especially when it comes to a topic as highly charged and abstract as money?  Self-reports are likely to reflect what people want to believe, not what they actually think or feel.  $75,000 is somewhat above the median, and many of those responding to the survey might well have thought it would be enough to make them happy.  Or they may have wanted to believe it.

Deaton added: “As an economist I tend to think money is good for you, and am pleased to find some evidence for that.”  That’s a case in point.  He found evidence for something he admits he wants to believe.

We all have things about ourselves we want to believe.  But do we really know?  And would we admit to what we really think?