Question of the Day: How Much Money Do You Need to Be Happy?

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Nov 25, 2014
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Activity, Behavioral Finance, Question of the Day, Budgeting

This might be an interesting question to pose to your students who may/may not have a context to answer it.  Another way of posing the question is to ask what “things” they think they need to be happy and estimate the cost of those items.  I predict you get a wide range of answers; from “not much” to millions of dollars.  This question provides a good introduction to the concepts of understanding needs and wants (see NGPF lesson here) and also the extremely tenuous link between money and happiness.

So, what does research say to this question?

  • CNN survey came up with a median of $80,000 (CNN):

When asked how much would do the trick, just over half of people surveyed in CNNMoney’s American Dream poll said it would take less than $100,000.  Nearly a quarter of the people who took the poll, conducted by ORC International, said between $50,000 and $74,999 would work.

  • Princeton research found a number close to $75,000 and differentiates between life satisifaction and happiness (Kahneman and Deaton):

Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ~$75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.

  • Taking into account the Kahneman study, HuffPost calculates how much you need to earn in each state to hit that $75,000 threshhold.  The most expensive state:  Hawaii.
  • CNBC cites a global study and arrives at a figure over $160,000:

The latest to weigh in on the issue is Skandia International’s Wealth Sentiment Monitor. It found that the global average “happiness income” is around $161,000 for 13 countries surveyed. The United States wasn’t specifically measured.

  • Lifehacker summarizes a Mint.com blog post and provides readers with a method to calculate their “magic number:”

“Simply stated, a client’s magic number is the amount of net income needed every year to cover his or her current lifestyle costs, save for the future, and spend money on things he or she enjoys in life.”

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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