Does Higher Income Improve Well-Being?
For decades, the relationship between income and well-being has been a topic of interest. Past research suggested that well-being improves with income but plateaus around $75,000 per year. However, a recent study conducted by Matthew Killingsworth at The Wharton School, University of Pennsylvania, challenges this long-standing belief, presenting evidence that well-being continues to rise even beyond that threshold.
Key Insights from the Study
Killingsworth’s research involved over 33,000 U.S. adults, who provided 1.7 million real-time reports of their daily experiences. This method minimized memory bias by capturing how participants felt "in the moment." Unlike earlier studies, which relied on retrospective evaluations, this approach revealed a more accurate relationship between income and well-being.
No Evidence of a Well-Being Plateau
The findings show a linear relationship between income and well-being: higher earners experience both greater moment-to-moment happiness and increased satisfaction with life. Notably, the well-being boost did not plateau at $75,000 or any other income level. Even those with incomes exceeding $80,000 continued to report improvements in their emotional well-being.
Experienced vs. Evaluative Well-Being
One important distinction made in the study is between experienced well-being (how people feel in their daily lives) and evaluative well-being (how people assess their lives when they reflect). The study found that both types of well-being increased with income, with no divergence between them. This suggests that wealth not only enhances life satisfaction but also makes daily experiences more positive.
Factors Mediating the Income-Well-Being Relationship
Several key factors were identified as mediators of the relationship between income and well-being:
Control Over Life: The study found that a sense of control accounted for 74% of the relationship between income and well-being. Higher incomes enable individuals to have more control over their lives, reducing stress and allowing for better decision-making.
Financial Insecurity: Having the financial means to cope with bills significantly reduced negative emotions, accounting for 38% of the relationship between income and well-being.
Time Poverty: Surprisingly, higher incomes were associated with greater time constraints. While individuals with higher incomes enjoyed more positive feelings, they also reported feeling more rushed and pressed for time.
Implications for Financial Decisions
This study has significant implications for individuals and policymakers. It suggests that striving for higher incomes can continue to yield emotional and evaluative well-being improvements, even beyond the previously believed $75,000 threshold. Moreover, the findings challenge the notion that income solely matters for long-term life satisfaction, revealing that it also enhances daily emotional experiences.
Conclusion
Contrary to earlier studies, higher income does not just improve how people evaluate their lives—it also makes them feel better on a daily basis. The emotional benefits of higher earnings continue well beyond the $75,000 threshold. For individuals making career or financial decisions, this insight is crucial, as it demonstrates that higher income can indeed enhance overall well-being in both the short and long term.
