The problem with the $75,000 sweet spot

In an opinion piece in last Sunday’s New York Times (link here), psychology professor Elizabeth Dunn (University of British Columbia) and business administration professor Michael Norton (Harvard) tackle the question of how much money we need to be happy and suggest that once we’re at a certain income level, we’ll likely get more satisfaction out of giving than receiving.

$75,000

The authors are quick to acknowledge that “there is a measurable connection between income and happiness” and that “people with a comfortable living standard are happier than people living in poverty.” But they go on to suggest that “additional income doesn’t buy us any additional happiness on a typical day once we reach that comfortable standard,” which in the U.S. “seems to fall somewhere around $75,000”:

Using Gallup data collected from almost half a million Americans, researchers at Princeton found that higher household incomes were associated with better moods on a daily basis — but the beneficial effects of money tapered off entirely after the $75,000 mark.

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Dunn & Norton summon this survey data to make a deeper point. Instead of falling for the all-too-common American practice of overindulging when our coffers fill up, why not underindulge and find better ways of using our money, like giving back to the community and to those in need? They even cite studies showing that we may get more pleasure by sharing than by keeping it all for ourselves.

They close their piece by suggesting:

But rather than focusing on how much we’ve got in our bowl, we should think more carefully about what we do with what we’ve got — which might mean indulging less, and may even mean giving others the opportunity to indulge instead.

I’m glad that Dunn & Norton are telling us to be generous, for our own sake and — more importantly — for the sake of others. At a time when the official unemployment rate is holding steady at just over 8 percent, and the “real” unemployment rate (including the seriously underemployed and discouraged job seekers who are no longer counted) is roughly double that, those reminders cannot come too often.

Uh, wait a minute

But before we get carried away, let’s break from the financial profile of the average Times reader and look at the bigger picture:

According to the most recent U.S. census data, individual yearly earnings from 2006-2010 (in 2010 dollars) averaged a little over $27,000. And household earnings averaged barely under $52,000.

In other words, most folks aren’t earning anywhere near $75,000. In fact, according to this handy calculator, that income level is at the 88th percentile of American earners, circa 2010. If we’re talking total household income (the measure of the study cited by Dunn & Norton), it would be at the 68th percentile. Even taking into account geographic cost of living differences, there simply aren’t a lot of people making 75Gs or more.

Where does this leave us?

If a $75,000 household income is indeed the magic number for feeling relatively comfortable, then something’s badly amiss when some 68 percent of the population may not enjoy that level of tranquility or satisfaction. We must address the larger economic, social, and political concerns that have brought us to this precarious place, such as the issues discussed in the recent AlterNet interview with Nobel Prize-winning economist Joseph Stiglitz that I excerpted earlier this week.

And finally, at an individual level, if you’re fortunate to have some discretionary income — however you choose to define it — think about how you can use some of it toward the greater good and to help those in need. You have a chance to make a difference in the lives of others.

***

[Note: This is a corrected version of the article originally posted and distributed to subscribers. I mistakenly published a version that did not properly reference the average individual and household income data.]

6 responses

  1. Hmmm… so if I were a large employer and wanted to maximize the employee life-satisfaction return on dollars spent on salaries…I’d minimize the number of employees I paid in excess of $75,000 annually and increase the salaries/wages of those earning less. Perhaps the employees earning more could be enticed to swallow this more readily if I gave them more time off…which would require me to hire more workers…and I’d be creating jobs! All of my workers might experience less stress, which would improve their productivity, so its winning all around!

    • Yes, that would make sense, so it’s very unfortunate we’re going in quite the opposite direction, with higher pay concentrated in a fewer number of people. It’s all part of the insanity we’ve witnessed over the past couple of decades.

      • I think it stems from a fundamental notion of inequality. We value people unequally and prove it with paycheques. We don’t have any other means. It’s sad when this idea becomes so embedded in the psyche of someone with low self-esteem that they commit themselves to doing whatever it takes to increase their earnings. The next thing you know, they are feeling justified in treating their subordinates as inferiors.

        Who’s worthy now?

  2. I know that the more a person earns from their job the more satisfaction they have within themselves.One of my relatives has climbed the ladder and is now well over the 100K income level but there is downside to these higher incomes too, like the extra stress and working pressures they have from being higher up in the hierarchy with more and more responsibilities.

    I do agree to a certain extent that sharing your good fortune with those less fortunate is always a good thing to do but that can also lead to people that expect to be taken care of all the time or an entitlement society. I reference the huge increase in folks getting food stamps and th large growth in people drawing SSI now.

    There does have to be a happy spot that gives one a comfortable feeling about their lives and their security to where they seek opportunities to give. Whether it is $75K or more or even less, the time to give is now. There are plenty of charitable organizations that always need gifts.

    It is my opinion that giving 10% of whatever your income level gives you a very satisfying feeling within.

    Judith Munson

    • While the risk of the entitlement/handout ‘tude is always a possibility in a generous society, the current spike in food stamp usage and accessing Social Security is clearly linked to the lack of good jobs. Many of the people on food stamps are the so-called working poor, i.e., those making so little that they’re still eligible for assistance — it’s not due to laziness or entitlement.

      As to giving, yes, the tithing approach is a great one. I think it should extend not only to charitable groups, but also to simply giving money to someone close to you in need. As in here’s a check, it’s a gift not a loan (unless you win the lottery!). with no strings attached (and meaning it).

  3. I just played with the calculators a bit. An individual at $178,000 annual income in 2010 hits the 1%. Now we know who we’re referencing when we talk about the 99%.

    A household income of that amount puts a family in the 94%. Sad that there are families for whom that doesn’t feel good enough. My mother didn’t work for money when I was growing up- she was (and still is) a community activist and volunteer who felt that taking a paying job when there were families in need would be immoral. There is more work to be done in our communities than there is money to pay for.

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