Relationship between income and happiness
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Income and Happiness: Curvilinear and Log-Linear Relationships
Research consistently shows that the relationship between income and happiness is not simply linear. At lower income levels, increases in income lead to significant gains in happiness, as basic needs are met. However, once a certain income threshold is reached—enough to cover basic needs—the positive effect of additional income on happiness diminishes due to factors like social comparison, adaptation, and rising aspirations 13410. This curvilinear or "satiation" effect has been observed globally, with studies identifying specific income points (e.g., $60,000–$95,000) where further income increases have little or even negative effects on well-being, especially in wealthier regions .
Absolute Income, Relative Income, and Social Comparison
Both absolute and relative income matter for happiness. While having more money generally increases happiness, how much you earn compared to others in your reference group can have an even larger impact. People often compare their income to that of their peers, and higher relative income tends to boost happiness more than equivalent increases in absolute income 67. However, the effect of income on happiness is still smaller than the impact of non-monetary factors, such as relationships and health .
Income Inequality and Happiness: The Inverted U-Shaped Curve
Income inequality also plays a role in happiness. Studies suggest an inverted U-shaped relationship: when inequality is low, people may feel optimistic about social mobility, which can increase happiness. But as inequality grows beyond a certain point, feelings of jealousy and disillusionment set in, reducing happiness . This pattern is observed in both the United States and Europe, though the specific effects can vary by region .
Psychological Mechanisms: Adaptation, Aspirations, and Well-Being
Psychological factors like adaptation and rising aspirations help explain why the happiness boost from income fades over time. As people earn more, their expectations and desires also increase, which can undercut the positive effects of higher income 14. This means that while people may expect to be happier with more money, their actual experienced happiness often remains stable as their aspirations adjust upward .
Recent Findings: Resolving Conflicting Evidence
Recent large-scale studies in the United States have clarified previous conflicting findings. For most people, happiness rises with income in a log-linear fashion across the income spectrum. However, for the least happy individuals, additional income only helps up to a certain point (around $90,000–$100,000), after which it no longer reduces misery. For the happiest individuals, higher incomes continue to increase happiness even beyond this threshold 59. This nuanced view shows that both earlier findings—of a plateau and of a continuous increase—are valid for different segments of the population 59.
Wealth, Shocks, and Life Satisfaction
Permanent income and wealth are better predictors of life satisfaction than temporary changes. Negative shocks to income can reduce happiness, but temporary changes in wealth have little effect. The impact of income and wealth is also stronger among those with lower life satisfaction .
Conclusion
In summary, income does increase happiness, especially at lower levels where basic needs are unmet. Beyond a certain point, the effect weakens due to adaptation, social comparison, and rising aspirations. Relative income and income inequality also play significant roles, and the relationship varies across different groups and regions. While money can buy happiness to a degree, its power is limited, and non-monetary factors often matter more for overall well-being.
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