Does earning more money lead to greater well-being?

This is one of the most enduring questions in the science of human well-being, with relevance to individuals making trade-offs between income and other life goals, employers determining wages for employees, and institutions influencing economic policy.

Research suggests a positive relationship between income and well-being in general.

But there are some questions and doubts about the shape of the relationship between income and well-being and about a possible threshold.

Past research has found that experienced well-being does not increase above incomes of $75,000/per year in USA.

One interpretation of this result is that incomes below $75,000 allow people to satisfy basic needs, leading to concrete improvements in their daily experiences, but that beyond this point, income only matters when people stop and reflect on their lives. A possible implication is that, beyond $75,000, money is just a way of “keeping score” in life, and there might be little reason to care about further increases in income as far as one’s day-to-day experiences are concerned.

The resulting threshold of $75,000/y has been influential in shaping scientific and popular understanding of the relationship between income and well-being, and the existence of such a plateau has substantial implications for individual and collective decision-making—but is it accurate?

The study finding a $75,000/y plateau in experienced well-being is based on remembered feelings, which may or may not be indicative of the association between income and actual emotional experience. Remembered feelings might introduce noise or forms of bias that artificially mute its association to income, such that actual experienced well-being could have a stronger association to income.

In the last research, Matthew A. Killingsworth has performed an investigation using smartphones to collect real-time reports of experienced well-being and examined its relationship to household income in the United States. Measuring in real-time would minimize errors of memory.

Data are from http://trackyourhappiness.org, a large-scale project using the experience sampling method, in which participants’ smartphones were signaled at randomly timed moments during their waking hours and prompted to answer questions about their experience at the moment just before the signal. The present results are based on 1,725,994 reports of experienced well-being from 33,391 employed, working-age adults (ages 18 to 65) living in the United States.

Experienced well-being was measured with the question “How do you feel right now?” on a continuous response scale with endpoints labeled “Very bad” and “Very good,” while evaluative well-being was measured with the question, “Overall, how satisfied are you with your life?” on a continuous response scale with endpoints labeled “Not at all” and “Extremely.”

Household income was measured with the question, “What is your total annual household income before taxes?,” with answers collected in defined income bands.

In accordance with past research showing that the relationship between income and well-being is best described as logarithmic, income values were log transformed for regression analyses and untransformed income values were plotted on a log-scaled axis for visualization.

In the present research the authors found that larger incomes wee robustly associated with both greater experienced well-being and greater evaluative well-being . Moreover, the shape of the relationship between log(income) and experienced well-being was strikingly linear: there was no observed plateau in experienced well-being, and there was no obvious change in slope of experienced well-being or divergence between experienced well-being and evaluative well-being, either around $75,000/y or at any other income level .

While there may be some point beyond which money loses its power to improve well-being, the current results suggest that point may lie higher than previously thought.

References

Experienced well-being rises with income, even above $75,000 per yearMatthew A. Killingsworth Proceedings of the National Academy of Sciences Jan 2021, 118 (4) e2016976118; DOI:10.1073/pnas.2016976118