Helping women gain confidence
when dealing with money

Is the Formula “Money = Happiness” True?

by Guest on August 5, 2011

A graduate from New York University’s Gallatin School of Individualized Study, Etan Berkowitz is an aspiring tech entrepreneur, writer and internet pop-culture addict. Combining elements of psychology, sociology and digital new media, Etan created his own major at Gallatin entitled “Mediated Communication in the Digital Age.” 

Common sense dictates that more money equals increased happiness. Money is supposed to make our lives easier. Being able to afford high-end technology, a bigger house, private education and dinner at exquisite restaurants should be the standard of any content person’s life. However, the reality is that too much money can start taking a negative toll on your life.

In a study conducted by Princeton professors Alan Krueger and Daniel Kahneman, 909 employed women were using the Day Reconstruction Method (DRM) to determine how happy they were by the end of the day. The women’s annual salaries ranged from less than $20,000 to more than $100,000. The data collected by the DRM showed how the women’s moods were the previous day. Krueger and Kahneman predicted that the women who made less than $20,000 a year would spend 32% more of their day in a bad mood compared with their $100,000 salaried counterparts.

Gallup poll asking people with specific annual incomes to rate their overall life satisfaction

However, the final results of the study showed that the women making $20,000 a year only spent around 12% of their day in a bad mood.

That wasn’t the only conclusion. The women with a salary of $100,000 or more seemed to be retroactively “adding happiness” to their day. Since they were making such a large salary, they assumed their days were better. These findings showed that these women’s overall perceptions of themselves were skewed by the money they made (and not even by that much), but their moment-to-moment happiness levels were basically the same.

A Gallup poll supports this theory of a monetary-happiness correlation cut-off point. The Gallup poll tested 450,000 Americans on an emotional well-being scale (moment-to-moment happiness) and overall life scale. In the emotional well-being scale, the poll assessed households on three key metrics, “experienced happiness or enjoyment yesterday”, “did not experience sadness yesterday” and “did not feel stressed out yesterday”.

Gallup then crossed these answers with the participants’ incomes and found something very interesting, once households reached an annual income of $75,000, the correlation between money and happiness completely tapers off. In fact, once you get to the much higher ranges of the scale, around $160,000, the “happiness factor” actually begins to decrease. However, as expected and previously mentioned, when families were asked about overall life happiness, there was a direct correlation between annual household income and perceived overall happiness.

According to the US Census Bureau, the average American household income in 2009 was $49,777. That’s not a far cry from $75,000. There exists a false perception of constantly needing vastly more than what we have. This is the key to unhappiness. Richard Easterlin, a professor of economics at the University of Southern California, affirms this statement with his own research, “At all levels of income, the typical response is that one needs 20% more to be happy.” But the more we try to hunt for happiness in money, the more elusive it becomes. According to various studies, savoring small, positive moments, having meaningful personal goals and socializing are consistently ranked as what makes people truly happy.

The lesson here is that money can buy the things that support happiness, like shelter and education, but you’re on your own after that. With that in mind, ask yourself if you already have enough to make you happy. Chances are, you do.

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