How much money do you need to be happy?

source: Joe Shlabotnik via flickr

At Stanford, I heard someone say they needed to make at least $150,000 annually to be happy. I was surprised for many reasons, but most of all, I was surprised at how serious the person took the question. I was raised with values like “health is wealth” and “money can’t buy you happiness.” Was I wrong all this time?

I have been interested in the link between money and happiness ever since. And so far, most of my experiences have confirmed my upbringing de-emphasizing money. While I see how too little money causes unhappiness, there is scant evidence of the inverse. Time and again I see that after a modest income level money and happiness aren’t that related.

Some of the happiest people I have met are associate professors on modest salaries who have good families and love their work. And among the unhappiest people I have met are the filthy rich. They have stresses and problems I never knew existed (I can’t believe the battery on my new Lexus died because I left it in the garage for too long…arg!).

I guess none of this is too surprising. It’s well understood most goods eventually lose their appeal when consumed in larger and larger amounts. The fifth slice of pizza you scarf down at a buffet never tastes as good as the first. Naturally money should exhibit such diminishing returns. But the interesting question is: when does this happen?

I would have guessed a fairly large amount, like $200,000. And I would have been wrong.

I came across an interesting study in the book The Mind of the Market by Michael Shermer, professor of economics at Claremont Graduate University. Shermer summarizes research that suggests that money has little effect on happiness at a level much, much lower than most of us would guess (like $20,000):

Arguably the most penetrating and most international study of happiness ever conducted is that of the World Values Survey that includes 250 questions that yield four hundred to eight hundred measurable variables. Over the past thirty years the survey shows that while people in certain pockets of the globe experience temporary increases or decreases in happiness, the average level of happiness has remained essentially unchanged. Once average income is above $20,000 per annum in today’s dollars-enough to put a roof over your head and provide three square meals a day for you and your family-more money does not bring more happiness.

[The Mind of the Market, p. 145-6]

There are several theories competing to explain these results. The two Shermer explores are:

1. Happiness is related to genetics (some people are born to be happy regardless of income level), and
2. Happiness is relative not absolute (living at the same income level as others may make you happier than being rich and constantly staring up at the super-rich).

While none of these reasons should diminish your desire or non-desire to accumulate wealth, they do suggest that money isn’t always the problem.

In a down market like this, it’s good to be reminded that one can be happy on less. Money isn’t everything. Try some new foods or relax if you need a change of pace. And if you really feel like you need to feel like a million dollars to be happy, maybe you could consider my “secret.”

What are your thoughts?