It’s been reported before that money does buy happiness. But, in fact, that happiness seems to die off around $75,000 in income. Making more than that doesn’t seem to provide incremental units of happiness. Now, with a new study, we’ve found indications that happiness can still be bought above the $75k threshold. Using international data, economists Justin Wolfers and Betsey Stevenson are showing that happiness increases with a logarithmic increase in income. Spoiler alert, rich Americans are the happiest on earth.
The Economist has an easier to read version of the chart here. If you aren’t used to reading a logarithmic graph let’s look at that for a second. On the left-hand side we have a generic scale of happiness 1-10. On the bottom axis we see reported income on a logarithmic scale. While the tick marks are equidistant apart, they represent a doubling of income every step of the way. In the simplest of terms, a since unit of happiness requires a doubling of income. Another way to say that is if you want to be 10% happier, you need to increase your pay 100%. Said one last way, if your happiness is a 7 and you want to take it to an 8, you need to double your pay. These are all generalizations to help illustrate how a logarithmic scale works and shouldn’t be compared to the chart (or used for homework). Stevenson and Wolfers do illustrate that income and happiness are correlated. But to get just a little bit happier you need a lot more money. That means there are likely more effective ways to increase your personal happiness.
The study also compares other countries. I said before that rich Americans are the happiest but there’s a lot more we can learn. For instance, Nigerians don’t experience a tremendous increase in happiness as incomes rise. Comparing Great Britain to Spain is very interesting as well. A British person is much happier at $16k in income than a Spaniard. But at $32k the positions flip. In essence Spanish derive more happiness from their income than British people.
It’s equally fascinating when all the countries are collected together and their GDP is used as a proxy for income. Again on a logarithmic scale, happiness increases as GDP per capita does. Somewhere around $15k in GDP per capita the increase in happiness accelerates somewhat. This type of research, if it can be validated through additional study, could create the type of benchmarks and goals that can be used to help lift the world out of poverty. As of right now we know what a developed and developing country are. But we don’t know exactly where the pivot is that divides different economies. Something like $15k per capita income might be a starting point for additional study.
Regardless, this is another example that money does buy happiness. Daniel Tosh explains it best:
Read: Subjective Well?Being and Income: Is There Any Evidence of Satiation? (Brookings Institution)