Happiness? That'll be $75,000 sir

NPR’s Planet Money team recently investigated whether money buys happiness and recent evidence says that yes, it does. Shocking right? I mean after everything we grew up hearing, how could this possibly be true?

Throughout history, rich people have always seemed happier than poorer populations. But the key observation was that this only holds true within a country. An American with a billion dollars is a lot happier than the American with a million dollars but not necessarily more than the Englishman with a million dollars. Economists reasoned that this was because of relative comparisons; being richer than your neighbor was all that mattered, not the guy living a mile away. But this theory was soon disputed by the fact that money isn’t worth the same everywhere as we can see in the example of the middle class New Yorker who would be rich in the plains of Iowa. And he isn’t necessarily going to make the move. So we decided that instead of being relatively wealthy, people enjoy being absolutely wealthy, or rich on a level field.

Under these new terms, Justin Wolfers an economist at the Wharton School plotted happiness levels and GDP per capita and lo and behold, he found a 0.8 correlation between both factors. In fact, a 10% income rise in any given country buys some more happiness. And this statistic doesn’t stop when people have met their basic needs and even some luxury wants. Nope it just keeps on going.

However this doesn’t hold true for all measures of happiness. When looking specifically at affective measures like if you smile a lot yesterday or things along those lines, we find that rises with income are small and generally stop when we hit approximately the $75,000 mark. But even in this case, far fewer the 1% of the people in the world ever cross this income level. So in nearly every way, money can buy you happiness.

But why? From our current knowledge, it all comes down to how you view that higher income of yours. Being wealthier isn’t as much being able to buy the nicest new car as it is say affording the medical advancement to successfully deliver and nourish a baby into childhood and adulthood. These amenities offer a security that is often key to avoiding traumatizing hardships. Other strong evidence has found that how respected we feel increases with income. And there are several other obvious factors; fewer things to worry about, greater health, freedom of choice.

Yet another part of it is the evidence that in many lower income regions, family ties take precedence to personal happiness. This means that working a little longer takes the backburner to spending a couple of extra hours with even distant relatives. Whereas in well developed countries, the opposite is often true.

The broad implication of this is that living a happy life may not be the most important thing. Happiness may not be as vital to life satisfaction and fulfillment as we ever designate it. So yes money can buy you its weight in happiness, but who knows, life just may not be as great as you thought it’d be.