Thursday, February 18, 2010

How much to make you happy?

UPDATE: the video is here. If you skip forward to 17:15 or so the announcer walks on to the stage and he brings up the 60k number. Of course, the whole video is probably worth watching.

So I'm really looking forward to this TED talk from Daniel Kahneman.

The choice quote from the link:

Psychologist and Nobel Laureate Daniel Kahneman says millions of dollars won't buy you happiness, but a job that pays $60,000 a year might help. Happiness levels increase up to the $60K mark, but "above that it's a flat line," he said.
"Money does not buy you experiential happiness but lack of money certainly buys you misery," he said. But the real trick, Kahneman said, is to spend time with people you like.
So why $60k? My initial suspicion (having not seen the presentation yet, it's not up), is that this has to do with some 80/20 math. In particular, that above $60k / year puts you into the top 20% of income earners which is probably all it takes to make most people happy. It's enough.

The numbers from Wikipedia.

A US job that pays $60k puts you almost exactly in the top 20% of US income earners. (assuming that you have a job and are over 25) In fact, it puts you in the top 40% of household incomes. So if you make $60k+ and your husband stays at home and watches the kids, you're still making more than the average family. And you probably have a University degree or better.

If you exclude some of the outlandish parts of the country (NY, LA), then $60k + health benefits provides you a very comfortable quality of life. And if you're like most earners in this category, there's a very good chance that your spouse also works which bumps you up even higher. If you make 60k and your spouse makes even $10 / hour (i.e.: 20k), that puts your family into the top 20% of US households.

So is that going to make you happy? Why don't we "imagine the life"?

You can probably afford to travel once / year, own a relatively new car, maintain a mortgage (at 2000 rates), kids a pet and a hobby or two (if you have time).

You go to a church with 100 families and you're in the top 20 for income. In fact, your top 20 group probably makes up 50 to 75% of the church funding b/c you have more disposable income. It sounds selfish, but living in such a peer group is very comfortable feeling.

Your kid is likely one of the richest 4 or 5 kids in their class. When the kids want to hang out, they want to hang out at your place b/c you have the good TV, the good games, the good snacks and the space. Your kid gets the coolest presents or at least nobody get toys that are significantly cooler. That tends to make a parent happy.

I know these are shallow definitions. But these things would probably make most people happy.

Is 90k better than 60k?

Again, I haven't seen the presentation, but I have some postulations as to why it isn't. Mathematically, the 90k is 50% "better", but it doesn't necessarily "give you more". Remember that at 60k, you're making more than 80% of the working population (let alone those out of work). At 90k you're making more than 85 or 90% of the population, but you've really only jumped a few "notches" in the "final rankings".

In most parts of the US you already have access to a very good and healthy life at 60k. You've pretty much covered everything commonly deemed as a necessity and you probably have some money left over for "entertainment". So the jump to 90k really just gives you a little more "entertainment" and maybe some bigger stuff, but that's it.

And if you're the type who's not happy with being in the top 20%, then how much further do you need to go? Top 10%? Top 5%?

Really, 60k for one job is far enough "ahead of the game" to keep happy those that can be kept happy. And that's probably why this is true.


Robert Platt Bell said...

I enjoy your blog. I suspect that one reason people don't get "happier" above $60,000 a year is that jobs that pay more, often have more stress attached.

Also, perhaps people tend to spend more and get further into debt in some higher income brackets.

I have noted that I have a lot of friends making $100,000 a year and are basically "broke" - living paycheck-to-paychek making payments on the Mercedes, the Lexus, the Mini-Mansion, and the yacht.

On the other hand, if you can live a very middle-class "Walmart Lifestyle" you don't have to spend a lot of money to be comfortable and happy.

With more money comes more stress - as you feel you might lose it all. The near rich are not as happy as the middle class or the very rich.

Perhaps the near-rich are frustrated because that can see that light at the end of the tunnel, but never reach it.

The middle class and poor resign themselves to their fates and thus are happier.

Just some theories...

Or to put it another way, money can't buy happiness, but it sure can buy a whole boatload of misery - in the form of debt.

Nice blog!

Gates VP said...

Hey Robert, that's actually a really good point.

It's hard to get a lot of credit when you're living on the low end of the spectrum (barring 2005 to 2008). But it is easy to live on the edge of available credit.

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