This 2010 Princeton University study, conducted by Nobel Laureates Daniel Kahneman and Angus Deaton, provides some interesting insights into the ‘does money make you happier?’ debate. The research sought to investigate the impact of earnings on two distinct but often-conflated aspects of subjective wellbeing:
- Emotional wellbeing, which ‘refers to the emotional quality of an individual’s everyday experience—the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one’s life pleasant or unpleasant’ (also known as hedonic wellbeing).
- Life evaluation, which ‘refers to the thoughts that people have about their life when they think about it’.
The two concepts often align but can diverge. For instance, many people dislike the day-to-day experience of working but will evaluate their life more positively if in employment.
Analysis of more than 450,000 responses to a daily survey of US citizens found that:
- ‘Income and education are more closely related to life evaluation, but health, care giving, loneliness, and smoking are relatively stronger predictors of daily emotions.’
- Both emotional wellbeing and life evaluation rise with income, but emotional wellbeing shows no further increase beyond an annual income of around $75,000.
- Below this level, on average, the emotional pain associated with challenges such as divorce, ill health and loneliness are exacerbated, and positive influences (such as weekends) are less emotionally beneficial.
Overall, the study concludes that ‘high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.’
The authors suggest that beyond the $75,000 threshold additional income no longer increases the ability of people to access more of the things that boost their emotional wellbeing, such as spending time with loved ones, avoiding disease and enjoying leisure. Moreover, as people earn more, their ability to purchase more positive experiences may be offset by some downsides. For instance, studies suggest that people with high incomes experience a reduction in their ability to savour small pleasures.
As Kahneman and Deaton note, ‘this observation underscores the importance of the distinction between the judgments individuals make when they think about their life and the feelings that they experience as they live it. As might be expected, the former is sensitive to socioeconomic status, whereas the latter is sensitive to circumstances that evoke positive and negative emotions, such as spending time with others and caring for a sick relative.’