The Briefing

• Previous research has indicated that money stops buying happiness after $75,000/year
• However, new research finds a strong correlation between income and happiness, trending upwards even after $80,000/year

In One Chart: Money Can Buy Happiness After All

What’s the relationship between money and happiness? Previous studies have indicated that, while money can in fact buy happiness, it plateaus at approximately $75,000/year.

However, new research suggests otherwise.

Using over a million real-time reports from a large U.S. sample group, a recent study found that happiness increases linearly with reported income (logarithmic), and continues to rise beyond the $80,000/year mark.

Below, we’ll provide more details on the research methodology, while touching on a few possible reasons why higher incomes may improve people’s happiness levels.

How is Happiness Measured?

Past research on happiness relative to income has relied on retrospective data, which leaves room for human memory errors. In contrast, this new study uses real-time, logged data from a mood tracking app, allowing for a more accurate representation of respondents’ experienced well-being.

Data was also collected by random prompts over a period of time, with dozens of entries logged for each single respondent. This provides a more well-rounded representation of a person’s overall well-being.

Two forms of well-being were measured in this study:

• Experienced well-being
  A person’s mood and feeling throughout daily life.
• Evaluative well-being:
  Someone’s perception of their life upon reflection.

Both forms of well-being increased with higher incomes, but evaluative well-being showed a more drastic split between the lower and higher income groups.

The Results (Measured in Standard Deviations from Mean)

Why Does Money Buy Happiness?

The report warns that any theories behind why happiness increases with income are purely speculative. However, it does list a few possibilities:

• Increased comfort
  As someone earns more, they may have the ability to purchase things that reduce suffering. This is particularly true when comparing low to moderate income groups—larger incomes below $80,000/year still showed a strong association with reduced negative feelings.
• More control
  Control seems to be tied to respondents’ happiness levels. In fact, having a sense of control accounted for 74% of the association between income and well-being.
• Money matters
  Not all respondents cared about money. But for those who did, it had a significant impact on their perceived well-being. In general, lower income earners were happier if they didn’t value money, while higher income earners were happier if they thought money mattered.

Whatever the cause may be, one thing is clear—Biggie Smalls was wrong. Looks like more money doesn’t necessarily mean more problems.

»Like this? Then you might enjoy this article, Which Countries are the Most (and Least) Happy?

Where does this data come from?

Source: Proceedings of the National Academy of Sciences
Details: Participants were 33,391 employed adults living in the United States; median age was 33; median household income was $85,000/y (25th percentile = $45,000; 75th percentile = $137,500; mean = $106,548; SD = $95,393); 36% were male; and 37% were married

The Briefing

• The age group with the highest average net worth in the U.S. is the 65-74 group, with $1.22 million in 2019 dollars.
• There is a significant gap between median and mean (average) net worth in nearly every age category, suggesting that mean values are skewed upwards by outliers.

Visualizing Net Worth by Age in America

Calculating the net worth of individuals often seems like the kind of math reserved only for the richest people in the world like Elon Musk or Jack Ma. But as the proverbial pie gets bigger, the net worth of the average American household gets bigger as well.

This chart uses data from the U.S. Federal Reserve Bulletin to reveal median and average household net worth across different age categories in 2019.

Average vs. Median Net Worth

A person’s net worth is a sum of their assets and liabilities. Here’s a closer look at net worth by age in the U.S.

The age group with the highest net worth is those aged 65-74, sitting at around $1.22 million. Coming in at a close second, are 55-64 year olds, at $1.18 million. However, these are the numbers using the average, while median net worth is quite different.

Median net worth at 65-74, for example, is $266,000, a difference of over $950,000 compared to the average. This reveals that there are likely high net worth individuals skewing the average towards over a million dollars in the same age category.

Both average and median net worth appear to increase throughout one’s life, trailing off slightly around the 75+ age range.

Trends in Net Worth

With the economic impacts of COVID-19, it’s possible that median net worth growth could taper off across nearly every age category, as people lose jobs, income, and assets such as houses.

Average net worth, on the other hand, may not drop as significantly, as a handful of American billionaires have actually increased their net worth during the pandemic.

Overall, wealth has been generally increasing in America with a consistent rise in average and median net worth occurring over the three years leading up to the pandemic. And while this steady increase has likely been slightly derailed, the general trends in asset ownership and income increases over time, bode well for Americans.

Where does this data come from?

Source: U.S. Federal Reserve Bulletin.
Details: Data is in 2019 U.S. dollars.