Business Journal

Happiness is Love -- and $75,000

Two researchers uncover what really makes people happy: friends and money (though you don't have to be rich to be happy)

The search to define happiness has consumed a lot of human energy. Until recently, we've had little to show for it -- some songs, a few poems, and a Charles Schulz cartoon about happiness being a warm puppy -- but nothing of much practical use.

The best life evaluations come from people who went to college, got married, and have good jobs.

To get practical results, you need scientists. Fortunately, two of the best are now on the case: Angus Deaton, Ph.D., a renowned economist, and Daniel Kahneman, Ph.D., a Nobel prize-winning psychologist, both from Princeton University. Dispensing with romantic imagery, Dr. Deaton and Dr. Kahneman looked for happiness in numbers. More specifically, they analyzed responses to the Gallup-Healthways Well-Being Index (GHWBI), a daily survey that asks roughly 1,000 U.S. residents a battery of questions about their wellbeing.

After analyzing more than 450,000 GHWBI responses from 2008 and 2009, Dr. Deaton and Dr. Kahneman found that happiness is actually the result of the fulfillment of two abstract psychological states -- emotional wellbeing and life evaluation. The finding is important because it offered the researchers a new and more useful way of looking at happiness.

"What did we get from these data? Everything," says Dr. Deaton. "The GHWBI asks clear questions about life evaluation as well as emotional wellbeing. These data are just terrific in permitting research that was not really possible before."

Evaluation and emotion

The difference between life evaluation and emotional wellbeing is vital, though the two are related. "Nobody claims that the two dimensions are independent," says Dr. Kahneman. "They're clearly distinct dimensions that are correlated. But they have somewhat different determinants. What improves people's emotional wellbeing is different from what it takes to make them say that they're satisfied with their life."

In other words, life evaluation and emotional wellbeing refer to different feelings. Life evaluation requires a long view of a person's overall life. Though life evaluation is colored by the day's emotions, Dr. Kahneman and Dr. Deaton's GHWBI research shows that people evaluate their lives based on a retrospective of their achievements. If they've accomplished the goals they've set, are financially secure, and are emotionally fulfilled, they're more likely to have a high evaluation of their life.

And research shows that the more conventional the goals, the better the life evaluation. Dr. Kahneman notes that the best life evaluations come from people who went to college, got married, and have good jobs; other studies show that people who wanted to be performing artists when they were 18 but didn't end up to be were generally very dissatisfied with their lives at age 45. "Having goals that you can meet is essential to life satisfaction," says Dr. Kahneman. "Setting goals that you're not going to meet sets you up for failure."

Emotional wellbeing reflects a much shorter view and refers to the emotional quality of an individual's everyday experience. If the day's experience is negative, emotional wellbeing will take a hit. That said, people with good emotional wellbeing seem to get it through social contact.

"Emotional happiness is primarily social," says Dr. Kahneman. "The very best thing that can happen to people is to spend time with other people they like. That is when they are happiest, and so, without question, this is a major story. We find loneliness is a terrible thing. So is extreme poverty. But loneliness, regardless of how rich you are, is a very bad thing."

But the research also indicates that you won't become happy merely by socializing with your best friends and achieving your goals. You also need $75,000.

The magic number: $75,000

Of all the important and interesting findings Dr. Kahneman and Dr. Deaton's research has uncovered, the most reported finding is that people with an annual household income of $75,000 are about as happy as anyone gets. More specifically, those with annual household incomes below $75,000 give lower responses to both life evaluation and emotional wellbeing questions. But people with an annual household income of more than $75,000 don't have commensurately higher levels of emotional wellbeing, even though their life evaluation rating continues to increase.

This finding holds true even where living isn't cheap. "When we mention $75,000, the question I always get is, 'What about New York City?'" says Dr. Kahneman. True, $75,000 won't go very far in big cities like New York, London, or Singapore, and it makes sense that a high cost of living will make even large sums feel puny. "Our finding indicates that $75,000 is the limit even in large expensive cities," says Dr. Kahneman. "So, though there may be places in which happiness levels off at a lower income, $75,000 is the sufficiency point in the most expensive places."

Dr. Deaton and Dr. Kahneman are not certain why, but the data are clear: Even in high-cost cities, incomes over $75,000 don't correlate to greater happiness. They think this is because even in expensive places, $75,000 is enough to live on while allowing for emotionally rich -- and enriching -- social experiences. Some places such as New York may be expensive precisely because they are such great places to live, says Dr. Deaton, because their terrific amenities may offset the higher cost of living there.

"No matter where you live, your emotional wellbeing is as good as it's going to get at $75,000," says Dr. Deaton, "and money's not going to make it any better beyond that point. It's like you hit some sort of ceiling, and you can't get emotional wellbeing much higher just by having more money."

Your emotional life depends primarily on your relationships with people.

Emotional wellbeing may not improve with additional money, Dr. Deaton and Dr. Kahneman think, because of several factors. One is that humans adapt quickly to the things money can buy. A mansion is a thrill the first month you live in it, but it's just a house the second.

Moreover, other research suggests that wealthy people don't take as much pleasure in actual pleasure as do poor people. In one test, social researchers primed some test subjects to feel rich and found that the "wealthy" subjects didn't enjoy luxury chocolate as much as the control group, the "non-wealthy," did.

And Dr. Kahneman and Dr. Deaton believe that when it comes to the very wealthy with high life satisfaction, their evaluations may be influenced more by keeping score than by purchasing power. If life evaluation is based on reviewing how much progress people have made in their lives, money may become a marker of success.

"Not having enough money to live a decent life really gets in the way of doing the ordinary things that make people happy," says Dr. Deaton. "What might create your emotional wellbeing is spending time with your friends, and if your income is below $75,000, you may not have the money to do it. But for life evaluation, money represents a sense of achievement. And that just keeps on going up when you have more money."

Stressing the subject

So people who have achieved their goals, who spend a lot of time with friends, and who make a lot of money have the most life satisfaction, while those who earn at least $75,000 a year have the greatest emotional wellbeing. But that doesn't mean they aren't stressed. The GHWBI data show that college graduates report more stress than people without college degrees, and Dr. Kahneman and Dr. Deaton say that stress levels are generally higher in wealthy countries.

The GHWBI data also showed that most Americans are happy and satisfied with their lives -- 85% reported a lot of happiness, enjoyment, and smiling; 24% reported sadness or worry; and 39% reported stress. Comparing the U.S. life evaluation scores with data available from about 150 other countries through the Gallup World Poll, the U.S. ranks fairly high. The only nations with higher scores are the Scandinavian countries, Canada, the Netherlands, Switzerland, and New Zealand.

However, while Americans come in near the top for life evaluation and do well on wellbeing, they're also among the most stressed. U.S. stress levels are the fifth highest when compared to data from other countries in the Gallup World Poll.

According to the U.S. Census Bureau, the 2010 poverty level for a family of four was a long way from $75,000 at $22,314 -- and 15.3% of Americans earned that much or less. "It is worse to be alone, it is worse to be divorced, it is worse to be unemployed, and it is worse to be sick if you're poor, and you get less benefit from the things that create emotional wellbeing," says Dr. Kahneman. "There are huge emotional costs to poverty."

And poor people are hardly carefree -- in fact, the researchers found that the poor report more stress than the economically comfortable. They also don't gain the benefit of stress alleviation on weekends, as do their better-off counterparts. And Dr. Deaton notes that there's a big difference between the stress associated with success and the stress caused by constant deprivation.

But the data show that money doesn't alleviate stress in the same way it alleviates unhappiness. In fact, money may go hand in hand with stress among high-earning people. "I think stress sometimes goes with success," says Dr. Deaton. "America is a very rich, busy, striving country, and that may be associated with stress. But we sort of like it."

With a little help from your friends

Dr. Kahneman says some studies show that while warm puppies really can improve emotional wellbeing, your emotional life depends primarily on your relationships with people. "I'd feel embarrassed to give that as advice -- 'improve your relationships.' But obviously if people are going to get happier, it's going to come to that," he says.

There is one thing, however, left to mention in this discussion of happiness -- individual temperament. Dr. Kahneman and Dr. Deaton's research, and that of others, clearly indicates that some people are just born happier, or "sunnier," as Dr. Deaton calls them. Their emotional wellbeing will always be higher than everyone else's.

That's not to suggest that those who aren't "sunny" are doomed to lives of misery. Even the most pessimistic, grumpy-by-nature people can find solace in Dr. Deaton's statement: "It may be that we're not designed for happiness." And what is it we were designed for? "To avoid getting eaten by predators," says Dr. Deaton. "If nothing eats you today, you ought to be happy. At least it's a start."

Jennifer Robison is a Senior Editor of the Gallup Business Journal.
Gallup http://www.gallup.com/businessjournal/150671/happiness-is-love-and-75k.aspx Gallup World Headquarters, 901 F Street, Washington, D.C., 20001, U.S.A +1 202.715.3030