The Definition of Rich: Does Money Make You Happy?

Both income distribution, and the relationship between wealth and happiness, have been studied for many years.  Here is recent data on both issues. Sometimes it helps to have some data to put your own thinking in perspective.

Happiness and Income

The first is a study of 450,000 Americans. The study examines the relationship between income and happiness. The study will be published in the June 30 issue of Science.  It summarized by Robert Frank in the Wall Street Journal (September 7, 2010):

The study, which analyzed Gallup surveys of 450,000 Americans in 2008 and 2009, suggested that there were two forms of happiness: day-to-day contentment (emotional well-being) and overall “life assessment,” which means broader satisfaction with one’s place in the world. While a higher income didn’t have much impact on day-to-day contentment, it did boost people’s “life assessment.”

Now we have more details from the study…  It turns out there is a specific dollar number, or income plateau, after which more money has no measurable effect on day-to-day contentment.

The magic income: $75,000 a year. As people earn more money, their day-to-day happiness rises. Until you hit $75,000. After that, it is just more stuff, with no gain in happiness.

That doesn’t mean wealthy and ultrawealthy are equally happy. More money does boost people’s life assessment, all the way up the income ladder. People who earned $160,000 a year, for instance, reported more overall satisfaction than people earning $120,000, and so on.

“Giving people more income beyond 75K is not going to do much for their daily mood … but it is going to make them feel they have a better life,” Mr. Deaton told the Associated Press

What do you think the income threshold would be in your town for maximum day-to-day happiness?

The study was done by two Princeton professors, economist Alan B. Krueger and psychologist and Nobel laureate Daniel Kahneman, in collaboration with colleagues from three other universities. The Princeton researchers collaborated with psychologists David Schkade of the University of California-San Diego, Norbert Schwarz of the University of Michigan and Arthur Stone of the State University of New York-Stony Brook.

The researchers developed a tool to measure people’s quality of daily life known as the Day Reconstruction Method (DRM), which creates an “enjoyment scale” by requiring people to record the previous day’s activities in a short diary form and describe their feelings about the experiences.

Class in America: Income

Of every $100 earned in the United States:

                        $24 goes to the top 1% of the population

                        $6 goes to the top .01% of the population.

The last thirty years has seen a massive shift of wealth from the lower and middle classes to the upper class.

In addition to receiving greater total income, those in highest income groups are keeping more of it because their tax rate has been greatly reduced over the last 15 years.

There is a corresponding shift in the total amount of assets owned, with the top 1% of Americans owning a increasingly share of the total pie over the last 30 years.

David Kocieniewski,  writing in the New York Times,  brings together these thoughts about class in the United States (September 29, 2010).

In the last 30 years, however,  the percentage of total income earned by the top 1 percent of Americans has grown sharply — to 23.5 percent in 2007, from about 9 percent in 1979. And the income share of the top 0.1 percent has grown even faster — to 6 percent in 2007 from 2 percent in 1988.

… The dispute over what income level qualifies as rich is caused, in part, by the tendency of people to gauge their own wealth by comparing themselves to those closest to them. A study released this month by two Princeton University professors found that in most of the country, people feel comfortably middle class if they earn $70,000. But in New York City, the figure was $165,000. The median income in New York City is $55,980, according to the Census Bureau.

J. Bradford DeLong, an economics professor at the University of California, Berkley, said many of the top earners in the United States did not consider themselves rich because they compared themselves to the statistically small segment of the people who earned more than them, rather than the much larger segment who made less.

“… somebody with five times the median household income, someone in the top 2 or 3 percent of the population, thinks of himself as just another ‘average Joe,’ ” said Professor DeLong, who was a deputy assistant secretary of the Treasury Department in the Clinton administration. “Why don’t you ask someone who makes $40,000 or $50,000 a year if they have a lot in common with a family making $250,000?”

Class in America: Wealth

In the United states, the top 1% of the population owns 38% of all wealth.

From Wikipedia, taken from “Distribution of Wealth.”

In the United States at the end of 2001,

10% of the population owned 71% of the wealth

and the top 1% owned 38%.

On the other hand, the bottom 40% owned less than 1% of the nation’s wealth.

According to this 2006 study by the  Federal Reserve System, from 1989 to 2004, the distribution in the United States had been changing with indications there was a greater concentration of wealth held by the top 10% and top 1% of the population.

The proportion of wealth held by the top 1% in the US is similar to the proportion held by the top 1% worldwide.

A study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned 1% of global wealth. Moreover, another study found that the richest 2% own more than half of global household assets.

What About San Diego?

Again, from Wikipedia:

In 2000, the median income for a household in the city was $45,733, and the median income for a family was $53,060.

Males had a median income of $36,984 versus $31,076 for females.

The per capita income for the city was $23,609.

About 10.6% of families and 14.6% of the population were below the poverty line, including 20.0% of those under age 18 and 7.6% of those age 65 or over.

SANDAG estimates that, by 2008, the household median income rose to $66,715.