How Much Money Do You Need to Be Satisfied?

Source:http://finance.yahoo.com/family-home/article/110009/how-much-money-do-you-need-to-be-satisfied

Two new research papers argue that money can buy life satisfaction, but not happy feelings -- and that earnings beyond $75,000 a year don't buy a lot more happiness.

First, a Gallup survey of 136,000 people in 132 nations found higher income is strongly correlated with how people evaluate their lives, but only moderately with day-to-day positive feelings. The study appears in the July issue of the Journal of Personality and Social Psychology.

"Does money make people happy? We must say it increases the likelihood that they will be satisfied a lot," says study co-author and psychologist Ed Diener of the University of Illinois, Urbana-Champaign, in a statement. "In our study of richest people, there were a few very unhappy people."

Researchers crafted several ways to measure different types of well-being: First, they asked respondents to do big-picture assessment of their lives, ranking themselves on an imaginary ladder from zero to 10 (with 10 representing "the best possible life for you" and zero the worst possible life). They found that life satisfaction rises significantly with household income.

"Life satisfaction is a judgment about life -- one sits back and reflects," Diener explains. "People spend most of their time making and spending money, and it is one of the big long-range goals for most people, and so it affects life satisfaction." That link between money and satisfaction was consistent across different nations, age groups, economic classes, gender and both rural and urban dwellers.

The survey also measured happiness in another way: Respondents were asked about their experiences of the previous day: Did they have a lot of positive feelings (enjoyment and smiling/laughing) or negative feelings (anger, sadness, worry and depression)? Were they treated with respect? Did they have the opportunity to do what they do best, learn something new and choose how their time was spent?

Using the Ladder

These attributes -- what Diener calls "social capital and mastery" -- had a more significant impact on day-to-day positive feelings than income. "Social capital means having others one can count on, being respected, and so forth -- and this predicts positive feelings," Diener explains.

"Mastery means learning new things and using one's abilities -- again, this predicted positive feelings. Whereas life satisfaction reflects whether people are obtaining their values and goals in a long-term and big-picture sense, positive feelings seem to arise from momentary things that are prewired, since feeling good about the support of others and about using skills are both necessary for humans to thrive and survive."

In separate study, Nobel laureate Daniel Kahneman and Angus Deaton of Princeton University analyzed more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 U.S. residents from 2008 to 2009. This survey also used the "ladder" scale and asked questions about emotional experiences in the prior day.

The authors found that while hedonic well-being -- or happy feelings -- rises with income, it plateaus around $75,000 -- although life satisfaction ratings continue to improve. Moreover, lower income exacerbated the emotional pain associated with poor health, divorce and being alone.

"More money does not necessarily buy more happiness, but less money is associated with emotional pain," the authors write. "Perhaps $75,000 is a threshold beyond which further increases of income no longer improve people's ability to do what matters most to their emotional well-being: spending time with people they like, avoiding pain and disease and enjoying leisure. It is also likely that when income rises beyond this value the increased ability to purchase positive experiences is balanced, on average, by some negative effects.

"Our data ... do not imply that people will not be happy with a raise from $100,000 to $150,000, or that they will be indifferent to an equivalent drop of income," they continue. "Changes of income in the high range certainly have emotional consequences. What the data suggest is that above a certain level of stable income, people's emotional well-being is constrained by other factors in their temperament and their life circumstances."

Both studies raise an important question: What is it about income that makes people satisfied with their lives? Is it the stack of cash in the bank; the means to afford basic needs and luxuries; psychological intangibles that tend to come with money, such as status; or the ability to achieve important long-term values and goals -- such as funding a child's college education?

"I wonder if the 'strong' association between income and satisfaction is really a surrogate for something else, such as having a successful career, or having travel or experiential opportunities that you don't otherwise have," argues Kennon Sheldon, psychologist at the University of Missouri, Columbia. Researchers in the global study did examine some of those issues by asking households a range of other questions, including whether there were times in the past year when they did not have enough money for food or for shelter; whether they felt satisfied with their standard of living; and whether they had a television, computer and access to Internet.

Not surprisingly, the one-quarter of respondents who said basic needs were not met reported lower life satisfaction. But researchers were surprised to find that the satisfaction with standard of living and the overall evaluation of life were more highly correlated in wealthy than in economically underdeveloped nations.

This undermines the notion that money is most important when it helps meet basic needs -- and suggests that the connection between higher income and life evaluation rests on the ability to fulfill material aspirations.

Relatively Speaking

Part of the reason may be that people in developed consumer economies have been socialized to value both material achievements and competition, and so they feel satisfied if they have more than the Joneses.

The "ladder" scale invites relative comparisons, says Carol Graham, senior fellow at the Brookings Institution and author of the new book "Happiness Around the World: The Paradox of Happy Peasants and Miserable Millionaires."

"More framed questions -- such as the best possible life ladder -- put the whole thing in relative terms, and then it is not a surprise that people think more in income terms and their relative position," she explains. "More open-ended questions, like 'generally speaking how happy are you with your life' or even an even more pure measure of effect, such as 'how frequently did you smile yesterday' elicit other emotions/conceptions of happiness and correlate much less closely with income. The ladder question relates more to how people think about what they want to achieve in their life, the latter questions about how people feel about their lives, relationships and so on."

Graham tested these questions against each other in a survey of people in Afghanistan. "I found that people in Afghanistan were happier than the world average and smiled as often as Latin Americans did, but Afghans scored much lower than the world average when asked the framed best possible life question," she notes. "They know where they stand in relative terms, in other words, despite being naturally cheerful."