The Perfect Salary for Happiness: $75,000
From the Wall Street Journal | Sept 7, 2010| By Robert Frank
In July, I blogged about a study that revealed subtle links between money and happiness.
The study, which analyzed Gallup surveys of 450,000 Americans in 2008 and 2009, suggested that there were two forms of happiness: day-to-day contentment (emotional well-being) and overall “life assessment,” which means broader satisfaction with one’s place in the world. While a higher income didn’t have much impact on day-to-day contentment, it did boost people’s “life assessment.”
Now we have more details from the study, conducted by the Princeton economist Angus Deaton and famed psychologist Daniel Kahneman. It turns out there is a specific dollar number, or income plateau, after which more money has no measurable effect on day-to-day contentment.
The magic income: $75,000 a year. As people earn more money, their day-to-day happiness rises. Until you hit $75,000. After that, it is just more stuff, with no gain in happiness.
That doesn’t mean wealthy and ultrawealthy are equally happy. More money does boost people’s life assessment, all the way up the income ladder. People who earned $160,000 a year, for instance, reported more overall satisfaction than people earning $120,000, and so on.
“Giving people more income beyond 75K is not going to do much for their daily mood … but it is going to make them feel they have a better life,” Mr. Deaton told the Associated Press.
He added that, “As an economist I tend to think money is good for you, and am pleased to find some evidence for that.”
The results are fascinating, especially in this conflicted age of materialism. But I wonder how they would differ by region or city. Would $75,000 mark the ultimate day-to-day contentment in such high-cost cities as New York City, Los Angeles or San Francisco? I doubt it. Perhaps the salary number would be lower in South Dakota or Mississippi.
What do you think the income threshold would be in your town for maximum day-to-day happiness?
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1:46 am September 7, 2010
edward ericson jr. wrote:
sounds about right.
11:59 am September 7, 2010
k. araceli wrote:
$75k net pay? Yes, life in L.A. would be so much sweeter….
12:01 pm September 7, 2010
Anonymous wrote:
Silicon Valley is the land of modest million dollar homes. Put twenty percent down on a home here and you still have an $800k mortgage. Even with historically low rates, payments are $5,000/mo or $60k a year and property tax about $10k. There is no happiness in trying to feed your family on $5k/yr. $125k is the minimum unless you bought twenty years ago, or are content to rent.
12:01 pm September 7, 2010
Birchtree wrote:
That’s pretty low if you live/work in Manhattan. My husband and I make about half a million a year combined, and I feel like that is the threshold. We can live in a comfortable one bedroom apartment, with a short commute to work and still save for a larger home for when we have children. I know half a million sounds like a lot, but it’s harder than most might think to save money for a home that would fit children (especially after taxes).
12:02 pm September 7, 2010
George R. wrote:
Interesting.
Resources (like $) give you options, assuming you live in a society that has options that can be acquired with those resources (e.g., not living on a remote tropical island ala Robinson Crusoe).
Therefore, disposable income is correlated with freedom (of choice, etc.), which ought to make most folks happy, politicans who want us all to live in their socialist paradise excepted, of course.
12:06 pm September 7, 2010
Ryan wrote:
Good luck ever owning property in the Silicon Valley on 75K/year, even with dual income.
12:07 pm September 7, 2010
Doug P. wrote:
Coming out of college 20+ years ago, I came up with a theoretical income map for my life: disposable income divided by disposable time. my goal has been to maximize this parabola. simply, past a certain income level, the incentive to devote an extra hour to work versus a kids soccer game needs to be compensated at a rapidly increasing amount to maintain the happiness level. seems to me, this analysis by whats-his-name is nothing new and in fact misses the psychology of how a person reacts to the “offers you can’t refuse.”
12:12 pm September 7, 2010
Political Fodder wrote:
Sounds like a great lead-in to wholesale tax increases. I’m sure some “briliant” politician will run with this.
12:13 pm September 7, 2010
Sagebrush wrote:
Hogwash.
It may be true on average, but stating that a single income number applies to everyone is like stating that everyone’s favorite color is blue. There’s going to be lots of variation from person to person…a real high standard deviation, I’d guess.
One probably must read the full report to understand its conclusions.
12:15 pm September 7, 2010
susan sellers wrote:
i have only 4500 left in debt to pay which at age 62 is getting harder and harder to hang in my job long enough to
do this. you see I drive 200 miles round trip each day for the last 25 years to a job that only increased 10.00 per hour in all those years. I am a grandmother of 5 and very lonesome for them, they are living at a distance. I dont make nearly close to 75k to even think about being happy or with my family. As i drive along to work every day wearing out my little car, I think, gee what will the next paycheck go to? a motor, tires, struts…..who can pay bills, and who can afford to move. Im very disgusted in the tax situation. I only hope we can continue to have the
tax cuts which will help us little people, create demand, and get this economy back to at least near normal.
And dont get me started on health care. thats a big no no, it didnt work world wide why would they ever think it would work here. Oh were are the wise men when you need them!
12:15 pm September 7, 2010
Wow wrote:
Don’t believe the hype. $75k is in no where close to where it stops. Who was polled? did you talk to people making $75k or higher? I doubt anyone making $75 would say that and anyone making $35 might think $75 is the number but so did I when I was 12. With the cost of things at an all time high and it doesn’t seem to be going any lower you will need a lot more than that to own property, save for retirement, have a decent running car and not to mention if you want to have 2 kids. $75k Forgetabbout it.
12:17 pm September 7, 2010
KML wrote:
There is much hand-wringing on this blog about the higher cost-of-living people face in NYC and other large cities and how various scales need to be adjusted to those realities. I have lived and worked in Manhattan, Los Angeles, Chicago and in several smaller cities, and I retain many friends/colleagues in these places at varying life stages, and I must say that the only category in which this argument really holds water is real estate. Decent housing is truly more expensive in those places. Everything else is a wash. Even private schools, because public schools have problems in many places around the country, not just in large cities.
12:21 pm September 7, 2010
Cathy wrote:
To add insult to injury, our tax dollars probably paid for this ridiculous study that lays the groundwork to collect even more of our tax dollars.
12:22 pm September 7, 2010
RoccoFan wrote:
Birchtree,
Ok…I’ll bite. You obviously wrote that comment to get a reaction out of the unwashed masses. An old boss once said that people will find their own level of poverty. I also heard a definition of poverty as “The inability to enter into the public ’square’ without shame.” You coment shows the truth in these sayings.
12:29 pm September 7, 2010
No absolutes wrote:
$75K/year would render me bankrupt rapidly here in NYC. Between my mortgage, student loans (law school included), and other monthly bills (phone, electric, Internet) — and NO credit card debt — $75K/year would not come close to covering my expenses. Not only would I not be content, I’d be downright depressed - and without spare funds to pay for antidepressants . . . .
12:32 pm September 7, 2010
Unrealistic wrote:
This is so untrue. It appears that it was not surveyed in expensive places like California and New York. I have earned in excess of $75,000 and still struggled and had to pay additional taxes. Ask the “super rich” if this amount is their ideal.
12:37 pm September 7, 2010
John wrote:
If Obama and the Democrats were not in charge, $75,000 would be great. but these days they have just bankrupted me. My savings is gone, the price of my house has dropped, my medical insurace by my employeer has increased, gas has gone up, and these wars are still going on. I want to be rich like Obama and his wife and spend my vacations golfing and in Spain and not working.
12:38 pm September 7, 2010
Prashant wrote:
You need a regional adjuster at a minimum.
12:46 pm September 7, 2010
Old Indie wrote:
There are really two thresholds, I believe. The ’single and free’ were $75 would get you a nice apartment, a decent car, and a bit for a vacation once a year.
The ‘family’ scenario, however is a different story. You need to save 10% for retirement, as there will be very limited, if any, SS in a few years. You need to save 10-20% for a down payment for a house, unless you plan on renting forever. Oh, and you need an emergency fund to pay the bills for at least 4-6 months.
That does not leave room for much else. I doubt that most people NEED all the stuff they have, but that is a different story.
Or, you can simple spend all $75K a year, and cry poverty, as many posters have.
12:49 pm September 7, 2010
Realistic wrote:
For those of you lamenting how $75K would never cut it, realize that most of those polled do not read the WSJ nor live in major metropolitan areas. When you look at a cross section of this nation, and get out of the big cities and the way of life that is promoted there, life is somewhat simpler and typical jobs are in the $40-$60K range. I left NYC after 18 years over 12 years ago and haven’t looked back. My standard of living is light years better than all of my former colleagues who chose to stay. And I have far more time with my family. Yes, I took a whopping pay cut, but my overall satisfaction and contentment with life increase greatly.
12:58 pm September 7, 2010
Bill wrote:
This is an extension of prior happiness studies and Maslow’s theories. As our needs are met (food, shelter, clothing) we become more or less happy. It only takes about $25,000 in the average location to cover these.
Each layer of less urgent needs (health care, education, transportation, leisure time) has a positive impact, until you get to a point where nothing will make you any happier than you already are. That’s where the $75,000 comes in.
Those with much more would disagree. Excess capital allows one to spend time on self actualization - lots of mind-body and intellectual stuff. It also gives us space (large luxury cars, his and her closets), lots fo free time from not working and having others take care of everything, privacy and the better views offered by waterfront or mountaintop property. This is all good, but I’m reminded of my sister who “married well” unhappilly relating the pressure of fitting both mental and massage therapists, yoga class and psychic reading appointments into a day. “There’s just too much to do, my life is such a mess.” You need at least $10 million to finance this kind of lifestyle, and I’m not sure it helps make anyone any happier.
1:03 pm September 7, 2010
dogwind wrote:
I agree. Where I live, if you stay out of debt, save, and live responsibly, then 75K would provide for a family of 3 or 4 in a very middle class neighborhood.
1:04 pm September 7, 2010
TiredOfFlippingTheBill wrote:
I think that more information or clarification is needed. Instead of $75K being the magic number, there should be some number excluding housing that is the magic amount.
1:10 pm September 7, 2010
Mike W. wrote:
I make 40k a year, live in a nice mid-west city, virtually debt free and put 10% in my 401k. The world doesn’t revolve around New York and L.A. The U.S. is a big country with plenty of affordable places to live.