How Much Money Makes You Happy?

In the US, beyond $75,000 year income, happiness doesn’t increase

Posted Aug 06, 2012

Children love goldfish. So if they are given a handful, they should be happy. And they are. Give them even more goldfish and they should be even happier. Not exactly. What made very young children the happiest, according to researchers Elizabeth Dunn and associate, was when they fed some goldfish to Monkey, a puppet.

Dunn concludes that “rather than focusing on how much we’ve got in our bowl, we should think more carefully about what we do with what we’ve got — which might mean indulging less, and may even mean giving others the opportunity to indulge instead."

The study with very young children is part of Dunn’s and Michael Norton’s larger work on the science of spending. One conclusion is self-evident: people with a middle-class standard of living are happier than people who live in poverty. But in the US, beyond $75,000 year income, happiness doesn’t increase. They say “higher household incomes were associated with better moods on a daily basis — but the beneficial effects of money tapered off entirely after the $75,000 mark.”

Increased money can lead to greater happiness, but generally not if it is spent on more things for yourself. If you have two TVs, buying two more doesn’t make you twice as happy. What would? Buying an experience, for one. A trip or dinner out contributes more to happiness than another gadget.

More significantly, that which brings the greatest happiness is buying less for yourself and buying more for others. Buying for yourself is linked to indulgence, a long recognized vice. And buying for others is linked to generosity, a long recognized virtue.

Those who are generous are happier, these researchers find. In one experiment, they gave $20 people walking down the street. Some were told to spend the windfall on themselves, others to spend it on others. From Canada, to India, to the US and South Africa, the results were the same. Those who spent money on others were happier than those who spent it on themselves.

The lesson is clear. It isn't thinking about yourself that makes you happy. It is giving to others that is connected to long-term happiness. Consumers aren’t happy; those with big hearts are.