The Centsei provides commentary free of shock-value and click-bait, so today’s first topic shocks approximately no one: being poor really, really sucks.  

I don’t need to cite the studies to show that poverty is correlated with a variety of negative effects: 

• Shortened average lifespans
• Crime rates
• Withdrawal from society
• Substance abuse
• Hunger
• Sickness
• Discrimination
• Unhappiness (OK, I lied. One study cited)

Poverty is the ultimate expression of powerlessness.

In contrast, wealth is correlated with the opposite effects:

• Longer lifespans
• Participation in society
• Good health
• Education
• Confidence
• Happiness, of course

However, correlation (as all good Centsees like you already know) does not imply causation.

We see plenty of examples of people with great wealth that end up being the unhappiest of all: the bankrupt lottery winner, the burned-out child star, the actor-turned-addict, the head-shaven pop singer, the adulterous golf pro… not to mention the many criminals who experience great wealth or fame (and even their own Netflix TV shows!).

At the same time, we see countless examples of everyday people with much less wealth and considerable happiness: the family down the road involved in their children’s lives every day, the couple next door with more friends than open evenings for board game night, the single mother who volunteers what little time she has to better her community, the random internet blogger who characterized himself as a martial arts instructor with a comically long mustache and a flying pig sidekick.  Yeah, “normal” people like that!

Why does this happen?  What is the connection?  Do you even need money at all to be happy?

Well, yes you do, but not as much as you might think.

We’ve seen already that money buys you choices.  Having some choices (money) when you’d previously had none will definitely make you happier.  If you have some flexibility on where you live, what you consume, how you spend your free time, and how much free time you actually own, you will be happier.  We should all strive to have our core “needs” met, along with some of our “wants.”

“Some” is the driving term here, as having more financial resources and choices eventually plateaus and often causes one’s well-being to even decline. 

Not everyone handles the ability to have an abundance of choices very well… at all. The lottery winner has “friends” and family appear from out of the woodwork begging for money, and because he never learned to manage his wealth, he ends up destitute in a few years.  The child movie star never gets to be a kid, instead living in an artificial bubble created by adults where she gets introduced to adult things (e.g. drugs) and loses her cinematic appeal at the blink of an eye. The corporate executive makes six figures, but doing so comes at the expense of 80-hour weeks and driving home in his Lexus to find his children already asleep.

Higher incomes also tend to come with more responsibility.  You might pick up a new expensive habit. You might find yourself asked to help out a family member who’s down on his luck.  You might see your friends leaning on you to pick up the tab (in which case, find better friends). You might feel pressured to donate to causes you don’t really support. You might have acquaintances ask you to invest in their shady business ideas.  You might think it a bright idea to start your own business (more on that one later).

While it would be nice to be able to choose to do these things, these choices can turn into obligations.  The same money that once represented your financial freedom now becomes an anchor tying you down to a lifestyle you didn’t need or want.

A well-cited study by Nobel Prize winner Angus Deaton showed that happiness does tend to increase as annual income goes up, but only up to about $75,000 per year, at which point it flat lines or even decreases by some metrics.

Here are what the lines represent:

(Left-hand side)
•  ‘Positive affect’ is the average of the fractions of the population reporting happiness, smiling, and enjoyment.
• ‘Not blue’ is 1 minus the average of the fractions of the population reporting worry and sadness.
•  ‘Stress free’ is the fraction of the population who did not report stress for the previous day. These three hedonic measures are marked on the left-hand scale.

(Right-hand side)
•  The ‘Ladder’ is the average reported number on a scale of 0-10.

Hold on a second!

You didn’t come here for academic mumbo jumbo, and I certainly didn’t come here to write about it. Let’s see if our friend Penny can summarize… in English.

That’s better!

Noteworthy is the fact that the study only considers the income of the individuals in question, not their spending, assets, debt, or other outside monetary factors that could affect their overall wealth.  There is no question in my mind that the person making $60,000 and spending just $50,000 (and saving for retirement) will experience more long-term happiness than the person making $80,000 but spending $100,000 (and filling that $20,000 gap with debt!).

The study sheds some light on a common misunderstanding: there is an upper limit on how much our paycheck affects our overall well-being. More importantly, it is an obtainable upper limit for a large number of people in a large number of industries.

Still, a higher income will only take you so far.  If you’re fortunate enough to make substantial increases in your income during your lifetime, don’t be surprised if you find that last pay bump a lot less satisfying that the first one.  If you’re already making $75,000 and are thinking about taking a job that pays more but would negatively affect your work/life balance, don’t.

Having no choices sucks.  Having some choices is a very good thing.  Having a too many choices (at the expense of our leisure time, stress level, or free will) can be a bad thing.  The journey to find that perfect balance is one we will continue to explore together.