If you like happiness and data, then $75,000 has long been an important number.
Angus Deaton and Daniel Kahneman – both winners of the Nobel Prize in Economics – published a study in 2010.
Based on the results of happiness surveys from 450,000 participants, they concluded that money does make you happier… but only until your income crosses $75,000 per year.
Above that, money does you no extra good.
What an encouraging result… This is one of the few academic studies that broke into the mainstream consciousness, garnered press coverage, and stuck in people’s minds.
After all, we all would like to believe that money doesn’t equal happiness. Sure, we need a roof over our heads. And it’s nice not to worry about bills. But all of our pithy cliches tell us that money isn’t important.
Money can’t buy you love. More money, more problems.
But academia moves on. And a study from 2021 by Matthew Killingsworth at the University of Pennsylvania now finds, in short… more money, more happiness.
It’s an idea with big implications – not just for your personal life, but also for the companies you choose to invest in…
The newer study used a much more robust data set. It also did more to distinguish “experienced well-being,” which means how good you feel in a particular moment, from “evaluative well-being,” which means how satisfied you are in the state of your life.
In the end, the new study concluded that experiencing positive feelings rises with income. And it does so at the same rate both below and above $75,000. (The study considered income to “above $120,000.”)
I’d like to think that our readers are smart enough to realize that money is a tool. You can use it to make yourself happier… or it can make you miserable.
If you use your money to chase status, blow it on an item that brings you more aggravation than pleasure, or allow your wealth to somehow convince you that you are better than others… then yes, money is the root of all evil (to borrow another cliche).
However, if you use money to increase your freedom and choices, buy back your time from things you don’t want to do, help others, and build security and safety for the people you love… then income and wealth absolutely can mean happiness.
Now the latest research backs it up.
Earlier this year, the Wall Street Journal ran a piece questioning whether the upcoming recession would be a “richcession.”
The argument was that lower-income folks had received a good deal of government assistance during the pandemic and had shored up their balance sheets. Meanwhile, tech firms were laying off highly paid workers in the tens of thousands.
Could it be that having more money could lead to more suffering in this downturn?
No. Again… it’s always better to have money.
The richcession is not happening. We’ve seen that so far when looking at companies that serve different types of customers.
Low-end retailers Dollar General (DG) and Dollar Tree (DLTR) have been underperforming since the start of the year. And the stocks of big luxury conglomerates LVMH (LVMHF), Kering (PPRUY), and Richemont (CFRUY) are all up this year on a dollar basis…
On Dollar General’s most recent earnings call, CEO Jeff Owen said, “Unfortunately, our customers are saying they’re having to rely more on food banks, savings, and credit cards.” Yet the rich haven’t scaled back their purchases of Richemont’s Cartier watches or LVMH’s Louis Vuitton handbags.
It has never been good to have less money.
But it seems more expensive to afford the basics these days. With inflation, as well as housing, health care, college tuition, and other key items getting more expensive, it’s just not easy.
If there was truth to that $75,000 number before, we’d need to adjust that for inflation. And the Consumer Price Index – which is up 39.7% on a nominal basis since 2010 – probably wouldn’t be enough… Housing inflation may be a better barometer. That’s up 48%, putting the “happy income” number at roughly $110,000.
Regardless, businesses with richer customers will be happier and spend more through the next couple of years…
That’s where you want to invest.
Here’s to our health, wealth, and a great retirement,
Dr. David Eifrig
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Source: Daily Wealth