After turning 30 and realizing my life goal should be to enhance the overall quality of my life experiences, I’ve been eager to find out how much money I need to earn to consider it enough. The reason is that working often involves trading time for money, and work is generally when people’s sense of happiness is at its lowest. There was a time when the most criticized and pitied junior manager at my workplace comforted colleagues by saying:
“Think of it this way: you get paid to be scolded. Isn’t it good to get paid just for standing while being scolded?”
Well, it’s not really that good. I want to know how much longer I have to stand here; once I’ve earned enough, I don’t want to continue. But asking this question seems a bit silly: Isn’t more money always better? Does anyone ever complain about having too much money? Because this idea is somewhat unrealistic, I hope to find some definitive answers.
How Much Money Do You Need for a Better Life Experience?
To answer this question, I started looking for potential studies. In 2010, scholars Kahneman and Deaton analyzed research data and concluded:
Overall, as income increases, positive emotions also increase. However, after reaching a certain income, the effect of increasing positive emotions weakens, and the overall curve flattens.
There’s a certain income level, beyond which it doesn’t really matter! This seems like a reference point. However, what is this amount?
This study, published in 2010, reported that the amount at which marginal effects start to decrease is USD $75,000 per year. In 2010, the median wage in the United States was USD $33,840. Therefore, if you make a rough estimate, this number is approximately double the median. The interpretation is that before reaching this income, low income is likely to cause situations that generate negative emotions (such as economic stress, medical expenses, etc.), which worsen experiences. This is what is written:
More money does not necessarily buy more happiness, but less money is associated with emotional pain.
Therefore, from this study, we obtained the following answers:
- Having too low an annual income is certainly not feasible. The troubles caused by living situations with too little money are directly associated with negative emotions, which directly degrade life experiences.
- But how much money is needed to eliminate troubles and achieve a better life experience? With the study published in 2010 stating the threshold is USD $75,000 and considering the median salary was USD $33,840, you would need at least double the median salary to achieve an environment that solves problems and reduces negative emotions, until reaching the point of diminishing returns. If you apply this ratio to living conditions in Taiwan, where the most recent announced median salary was TWD $518,000 in 2022, to overcome troublesome situations, an annual income of at least NT $1,000,000 is needed in Taiwan.
- In the context of Taiwan, after reaching an annual income of NT $1,000,000, the happiness gained from additional money starts to diminish. Therefore, having an annual income of NT $1,000,000 should be a worthwhile target to strive for.
But is that the whole story? In Taiwan, nearly a quarter of the people aged between 40 to 65 have annual salaries near or exceeding one million. There are plenty of wealthy individuals. But if these people’s life experiences aren’t particularly great and earning more money doesn’t significantly increase happiness, why are they willing to stand in a place that may not offer a very good experience?
Marginal Utility Diminishing Doesn’t Necessarily Exist
At this time, a study that suggests \”experienced well-being rises with income, even above $75,000 per year\” (Killingsworth, 2021) nearly shattered the hope that \”an annual income of one million allows for stepping back.\” The conclusion of this study matches exactly with the result in its title:
Higher income is consistently associated with greater happiness, and this relationship is linear: there is no observed plateau or change in the slope, even above USD $75,000.
Hearing this conclusion makes me think, “What… so it’s still not… enough?” It makes me want to just lay back. Looking again, what he’s saying is:
- The empirical data does not support the idea that people with annual incomes exceeding a certain threshold simply stop getting happier as they make more money. Their happiness remains consistent and is not related to a threshold. This result contradicts earlier findings.
So, what to do now? I previously believed that there was still a target value for annual income, assuming that once reaching the endpoint, one could just take it easy, only to find out making money doesn’t indeed have an endpoint. Moreover, a one-million annual salary in Taiwan is already twice the median, surpassing 80% of Taiwan’s salary class, which isn’t exactly an easy goal to accomplish, yet there is always a taller mountain. Turns out, fulfilling the dream of relaxing is actually so elusive?
The Feeling of Happiness from Earning Money is Based on One’s Sensitivity to Happiness
Due to the conflicting results of whether \”higher income above a certain amount brings more happiness,\” after several years of being perplexed about this issue, two scholars finally found a mutually acceptable answer. Killingsworth, Kahneman, and Mellers (2022) re-examined all previous data and came to the following conclusion:
- The critical amount has changed to USD $120,000 due to inflation in 2022. In that year, the median US salary was USD $74,580. While it’s not exactly twice the median, it is still significantly higher.
- What seemed to be conflicting results like “higher income leads to higher happiness” and “happiness plateaus past a certain salary,” both outcomes are actually correct. The reason is: each person’s sensitivity to happiness (Person-Level Happiness) results in a different slope.
- For those who are not easily happy, the increase in happiness from salary increases is highest before reaching the critical amount. But past the critical amount, the happiness gained from salary increase is the least, which conforms to the pattern initially discovered by Kahneman and Deaton in 2010.
- Those who are generally more easily happy gain the least happiness from salary increases before the critical amount. However, past this amount, they gain the most happiness.
Okay, so the problem is solved: trying to find the amount of income to maximize personal happiness, ultimately, it’s all about whether one is easily happy.
But, here’s an even more astonishing statement from the researchers:
Regarding this result, there is an important point to mention: the result is statistically significant, but the association is quite small. The correlation between average happiness and income (logged) in the experience sampling data is only 0.09. For instance, the difference in average happiness between household incomes of USD $15,000 and USD $250,000 is about five points on a 100-point scale.
Indeed, this is a typical \”statistically significant but with a very small effect size\” result. A 16-fold difference in income results in less than a five-point difference in happiness on a 100-point scale. Achieving those 16 times difference in income would definitely require more than just a 5% difference in effort and life chance. From a return-on-investment viewpoint, using money-making as a means to happiness has a really low return on investment.
Conclusion: It All Comes Down to Oneself
After reviewing these studies, I am quite sure that I cannot find the answer to “how much annual income brings the most happiness.” But there are some takeaways:
- The critical amount in Taiwan is likely between 1.5 and 2 times the median salary, around NT $750,000 to NT $1,000,000 per annum. Reaching this critical amount gives us resources to reduce the troubles in life and mitigate discomfort. Considering the advantage of reducing discomfort, it is still a goal worth working towards.
- Getting \”more happiness by earning more money\” is certainly possible, but the effect size is very small. Considering the effort required for making more money, the return on investment is actually very low.
- The differences in happiness largely stem from oneself. Do you find it easy to be happy? If not, earning more money has even less effect. If yes, earning more money might indeed make you happier.
Ultimately, it’s all a matter of personal disposition. Rather than chasing money, maybe we should seek other ways to find happiness?
References
D. Kahneman, A. Deaton, High income improves evaluation of life but not emotional well-being. Proc. Natl. Acad. Sci. U.S.A. 107, 16489–16493 (2010).
M. A. Killingsworth, Experienced well-being rises with income, even above $75,000 per year. Proc. Natl. Acad. Sci. U.S.A. 118, e2016976118 (2021).
M. A. Killingsworth, D. Kahneman & B. Mellers. Income and emotional well-being: A conflict resolved. Proc. Natl. Acad. Sci. U.S.A. 120, e2208661120 (2023).
