How much more money buys happiness?

David MoonBlog

I received a Christmas card last year that depicted a little boy writing a letter to Santa. “Dear Santa, I won’t mind if I don’t get what I want for Christmas so long as no one else does! Timmy.” I think young Timmy understands the relationship between materialism and happiness better than most social scientists. That is, what you have matters less than what you think you should have.

Imagine that you lived in a house a third smaller than your current home, didn’t have air conditioning, ate fewer than one restaurant meal a month, didn’t have television and your entire family shared a single phone – which was mounted on the kitchen wall and could only be used when your neighbors weren’t on the line.

That was the median household in the 1950s, a time when 58% of Americans self-reported being very satisfied with their financial situation – a striking contrast to the 37% reported in 2022. While 1950s living standards were significantly lower than today’s, they were more closely clustered around the average than they are today. And 70 years ago, social media didn’t inundate us with constants streams of wealthy outliers, reminding us of how remarkably average most of us were.

Studies regularly find a correlation between income and happiness by comparing reported happiness levels across different income levels. Most of these studies conclude that happiness and economic contentment peak when annual household income reaches about $95,000. Beyond this point, further increases in income show no significant correlation with self-reported improvements in happiness.

This is why I was surprised (and disappointed) by a recent study that explored the relationship between happiness and income slightly differently. Conducted by Empower, the study asked people how much of a pay increase they believed it would take to make them financially content. Across the 2,000 survey respondents, the average pay increase participants indicated they needed to be happy was almost 50 percent.

The age group breakdown is shocking.

Baby Boomers (age 60 and up) expressed that the amount of annual income they would need to be happy is $124,000. Contrast that with Millennials (roughly 20-to-40 years old), who claimed they would need $525,000 of annual income to be happy. No wonder so many of that group also report being miserable.

People with an annual income of $65,000 said they would need to make $95,000 to be happy. Yet the highest income group in the survey – those earning an average of $250,000 annually – said they would need $350,000 a year to attain happiness.

This suggests that it may not be possible to produce happiness with income increases. But there is a foolproof way to produce misery: belittle yourself for not being as apparently rich as your Instagram idols.

David Moon is president of Moon Capital Management. A version of this piece originally appeared in the USA TODAY NETWORK.