The old adage that “money can’t buy you happiness” may need to be updated.
A new study of the connection between money and well-being found that happiness, for most people, increases with more income. Previous research asserted that happiness plateaus once people start earning approximately $75,000 per year. But the new report published by the Proceedings of the National Academy of Sciences suggests emotional well-being continues to increase for a majority of people as income rises, including those who earn up to $500,000 per year.
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A Closer Look at the Findings
The research, published March 1 and titled “Income and emotional well-being: A conflict resolved,” is a reanalysis of two conflicting studies on money and happiness. In 2010, Nobel Prize-winning psychologist Daniel Kahneman and economist Angus Deaton published groundbreaking research that showed happiness levels increase with income, but quickly flatten out when income enters the range of $60,000 to $90,000.
Eleven years later, Matthew Killingsworth conducted a similar study and found that happiness doesn’t hit an apex and flatten out. Instead, happiness levels continue to increase beyond the $200,000 income threshold, Killingsworth found.
The new study, which the authors describe as an “adversarial collaboration,” reexamined their previous research. They learned that happiness does plateau, but only for the 20% of people surveyed who are least happy. For them, happiness only flattens after for incomes above $100,000.
But happiness levels rise for the remaining 80% of people as income increases. For example, the 30% of people who are the happiest experience an accelerated increase in happiness once their income surpasses $100,000. In other words, happiness can increase more dramatically after a person reaches a $100,000 income than it does en route to that milestone.
While nearly 90% of the people surveyed had incomes below $200,000, the researchers were able to show that happiness and income steadily rise together for those earning more than $200,000. That pattern exists for incomes of up to $500,000.
Can Working With a Financial Advisor Make You Happier?
The research dovetails with a recent survey that found people who’ve hired a financial advisor are nearly three times happier with their life than others.
Herbers & Company’s inaugural Consumer Financial Behaviors Study, which polled 1,000 consumers across the U.S., determined that people with $1.2 million in household wealth report higher levels of happiness when working with a financial advisor.
Respondents with less than $1.2 million in assets reported the same level of happiness, whether they work with a financial advisor or not. However, those above that threshold are significantly happier when they work with a financial advisor compared to their peers who don’t, the survey found.
Meanwhile, the richest respondents (those with $6 million) reported the highest levels of happiness when working with a financial advisor, suggesting the impact of an advisor increases the more assets a person has.
The correlation between income and happiness extends well beyond the $75,000 threshold once thought to be the point where happiness plateaus. The authors of two conflicting studies on money and happiness joined together to reexamine their previous research. They found that incomes above $100,00 don’t lead to more happiness, but only for the most unhappy of survey respondents. For the remaining percentage of people, higher incomes often lead to increases in happiness, dispelling the old adage that “money can’t buy happiness.”
Financial Planning Tips
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