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At first glance, it seems that more money is always better, right? As it turns out, it’s not that simple.
Ultimately, it comes down to what we want to do with our money. If it’s about improving emotional well-being, there is a point where more money doesn’t help, and, surprisingly, that point comes well below a six-figure salary. If instead it’s about improving our overall life satisfaction, which is more than just our day-to-day happiness, more money might help indefinitely.
This observation is at least as old as Aristotle. He drew a distinction between gathering wealth for the sake of gathering wealth, in which case the more money the better, and gathering wealth to manage a household, in which case there comes a point where more money is no longer helpful.
A recent and quite famous study came to a similar conclusion.
Nobel Prize-winning psychologist Daniel Kahneman and economist Angus Deaton analyzed 450,000 responses to a Gallup survey over a two-year period to find that, when it comes to emotional well-being – day-to-day contentment – having more money helps, but not beyond an annual household income of about $75,000 (U.S.). Up to that level, people reported more indications of emotional well-being, but earnings above that failed to produce any meaningful difference in more smiles or less stress, the indicators of emotional well-being.
However, when participants were asked to rank their lives on a scale of zero to 10, from their worst possible life to their best possible life, answers to these life evaluation questions continued to increase as far as researchers were able to study (up to household incomes of about $160,000 U.S.). While those in households earning more than $75,000 a year did not report any gains in emotional well-being, they did keep ranking their lives closer and closer to 10 as their incomes increased.
So what can we make of all this?
When it was released in 2010, the Kahneman and Deaton study was widely reported to have shown that “money buys happiness up to $75,000 a year.” But the reality is more complex, and depends on what we are willing to accept as a definition of happiness.
If we think our happiness is rooted in a well-managed household or improved emotional life, more money can help up to a point. If instead, our aim is to improve our overall satisfaction with our life, more money might always be better.
Understanding this difference can help to shape both the compensation packages we seek and the compensation packages we offer.
If we choose to improve our emotional well-being, this is a goal that can conceivably be reached. While $75,000 is still above the median Canadian income, it is a game that everyone can, in principle, win. Once we or our employees are at this level, we might seek more effective – and cheaper – incentives, such as more flexible hours, positive social recognition or detailed performance feedback, since monetary incentives don’t always motivate.
If we strive to achieve a higher score and improve our life evaluation, both Aristotle and some of our best economists suggest that this pursuit might always leave room for improvement and so provide grounds for monetary incentives to encourage greater productivity.
However, since the game of getting wealth is one that goes on forever, this might just mean that it’s a game nobody can win.
David G. Dick, PhD, (@DavidGDick) is an assistant professor of philosophy and a Fellow of the Canadian Centre for Advanced Leadership in Business at the University of Calgary’s Haskayne School of Business (@haskayneschool). In addition to his research in business ethics, he teaches a course on the philosophy of money.