Income and experienced well-being

A popular study attempting to understand the relationship between money and happiness posited that there was a plateau in happiness once income reached $75,000. A recent study by Wharton professor Matthew Killingsworth – drawing on reports from over 30,000 professionals in the US – that used a continuous scale to measure well-being instead of the binary scale in the past studies found no evidence of this $75,000 plateau.

Instead, experienced well-being and life satisfaction rose with income.

So did positive feelings (confident, good, inspired, interested, and proud) relative to negative feelings (afraid, angry, bad, bored, sad, stressed, and upset).  

The relationship was logarithmic instead of linear. This means the difference in well-being in families that earned $20,000 vs. $60,000 would be similar to the difference between those earning $60,000 vs. $180,000. This means marginal dollars matter less the more one earns – i.e., you see much larger jumps in well-being when you grow income from $20,000 to $60,000 vs. $60,000 to $100,000.

In short, money contributes to quality of our life in a big way. The more money the better. And we do hit diminishing returns – however, that point is likely well above $75,000 and likely varies a lot based on where you live.