We’ve all heard the old adage that money can’t buy you happiness. But can it?
Research indicates that while there is a positive correlation between income and happiness, the answer isn’t so simple, and some might even say that there is a limit to how far money goes in bringing us joy.
In 2010, Daniel Kahneman at Princeton concluded in a landmark study that people felt happier as they earned more. However, after reaching a certain threshold (which he estimated at $75,000 in annual income per person at the time), reported happiness stopped rising with income.
Further research done since then from Purdue University supported this theory that well-being (how happy people were with their lives overall) stopped rising after $75,000 and life satisfaction (what people think about their lives in general) after income reached $90,000. (Living in higher cost areas suggests those numbers should be inflated. Income would need to be 40% higher in LA, 50% in Seattle and 80% higher in San Francisco.)
An even more recent study measuring the correlation between happiness and money came in the form of Track Your Happiness, an app developed by Harvard psychology doctoral student and former software product manager Matthew Killingsworth. The app pings users at random intervals with one-minute surveys, gauging their activities and feelings on a sliding scale.
Killingsworth noted in his report, published in the Proceedings of the National Academy of Sciences, that the connection between satisfaction and money doesn’t diminish after reaching past the $75,000 or $90,000 income threshold. According to this report, money can keep buying happiness.
The reasons for money making us happy are mostly speculative, of course, and likely change over time as our needs, values, and priorities change. More money typically brings more complexities, however, that can absolutely impact our happiness. And we all know that people still have problems regardless of income – they’re just different kinds of problems. So, if money alone isn’t a surefire bet for increased happiness, what is?
Some say the answer lies in the well-being theory, which suggests an individual’s happiness is optimized when they report high levels of a number of different areas in their lives. Unsurprisingly, these areas can be improved independent of changes to income.
- Positive emotion refers to how you view your past, present and future. People who cultivate optimism report higher levels of positive emotion and therefore happiness.
- Engagement corresponds to how much “flow” or immersion you experience in tasks during your day. High scorers enjoy activities where they are so absorbed they often “lose track of time.”
- Relationships are a cornerstone of high well-being. This doesn’t necessarily mean more relationships, rather those that are supportive and/or fulfilling in nature.
- Meaning involves believing in a clear purpose to your life and your contribution to or belonging to something greater than yourself.
- Accomplishment is defined as the pursuit of mastery over a skill, hobby, sport, educational endeavor or professional goals.
High scores in the above areas corresponded to a higher sense of well-being among the respondents. While income unequivocally increases happiness when it serves to meet basic needs and wants, above certain income levels we would do well to focus on other areas of engagement, in order to increase our happiness and well-being.
As a financial advisor, my goal is to help educate and guide clients to financial empowerment, whether through financial planning or investing. Even though my primary goal is to help my clients achieve their financial goals, those goals are always tied to something bigger than just more money in the bank. Whether or not your view on money is tied to how much joy it might bring you, it’s important not to lose focus of those intangibles that make having money that much more rewarding.
Private Ocean is a West Coast-based wealth management firm deliberately structured to give clients the intimate experience of a small firm while harnessing the power, depth and discipline of a much larger one. Formed in 2009, the firm has locations in San Rafael, San Francisco, and Seattle.
Steve Branton, CFP, CPCC is a financial advisor, an Accredited Domestic Partner Advisor (ADPA), specially trained to advise on various financial issues including marriage planning, wealth transfers, federal taxation, retirement planning, and medical end-of-life needs for domestic partners and non-traditional clients, and a Certified Co-Active Coach (CPCC).
“Happiness, income satiation and turning points around the world,” Nature Human Behaviour. Andrew T. Jebb, Louis Tay, Ed Diener and Shigehiro Oishi, 2018.
“From Functioning to Flourishing: Applying Positive Psychology to Financial Planning”. Journal of Financial Planning. Sarah D. Asebedo, CFP and Martin C. Seay, Ph.D., CFP. November 2015.
[i] “High income improves evaluation of life but not emotional well-being”, PNAS, Daniel Kahneman and Angus Deaton, 2010.
[ii] Money only buys happiness for a certain amount, Purdue University, 2018. https://www.purdue.edu/newsroom/releases/2018/Q1/money-only-buys-happiness-for-a-certain-amount.html.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Private Ocean, LLC [“Private Ocean”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Private Ocean. Please remember that if you are a Private Ocean client, it remains your responsibility to advise Private Ocean, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/ evaluating/ revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Private Ocean is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Private Ocean’s current written disclosure Brochure discussing our advisory services and fees is available for review upon requestor at www.privateocean.com. Please Note: Private Ocean does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Private Ocean’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Also Note: If you are a Private Ocean client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.