Do Income and Wealth Bring Happiness?

We’ve heard the saying that money can’t buy happiness, but is it true?

A Princeton study 2010 suggested that happiness increases up to an annual income of $75,000 after which there are no significant gains in happiness. A 2012 Marist poll put the figure even lower at $50,000. Both those studies were in the US. A Skandia study in 2012 put the global average income needed for happiness at $161,000.

Common sense would tell us that apart from a few die-hard romantics, the rest of us do feel happier as our income rises. Certainly it’s hard to feel happy when you’re worrying about paying the bills every month. Past a certain point though, there is little incremental happiness to be gained from absolute income. Relative income and wealth however, continue to have an impact on our happiness.

Relative income impacts your happiness

A 2005 study suggests that relative income has a greater impact on happiness than absolute income. We tend to compare ourselves to our peers. By a certain age, we’ll have have met the $75,000 income to have our needs met. But if our peers’ incomes continue to rise more quickly than ours, we will still feel unhappy even if we already earn way more than $75,000.

In other words, keeping up with the Joneses does make us unhappy. Some of us may have already known that for a while from personal experience.

How you can avoid the relative income trap

The obvious way to avoid making ourselves unhappy is to stop comparing our income and wealth with our peers. This is much easier said than done, of course. Focusing our mind on things other than money helps, since the brain can focus on only one thing at a time. When you’re absorbed in pursuing your life’s purpose, or working hard at your craft everyday, or training hard for a sports event, you’re less likely to have the time and energy to think about other people and their money.

One piece of good news that Firebaugh’s research revealed is that relative income is the second most important factor in determining happiness. Physical health was the most important. So if you’re healthier and fitter than the Joneses, it doesn’t matter so much if they have more wealth than you. Time to start that exercise regime.

Calling the Joneses

On the other hand, you may be the one your peers compare themselves to and try to keep up with. If you are the Joneses, you can contribute to the general happiness of the world by being low-key about your wealth. No one will grudge your secret happiness at knowing you are relatively richer, but there is no need to make everyone else miserable by showing off 😉

And even if you are very wealthy with more than $5 million in investible assets, go ahead and use your wealth to buy happiness. 20% of the very wealthy agreed that money still buys them happiness!