As the presidential race picks up speed, and candidates get more outspoken on the campaign trail, one section of the United States’ population seems to get an exceptional amount of attention: the middle class. How the middle class is defined—and who is a member—is an evolving concept and an important political target for candidates. As politics have evolved, the definition of the middle class has changed too with respect to the economy and changes in standards of living.
While the middle class maybe an important political conversation, the recent Noble Memorial Price winner for economists has a different opinion. Most importantly, Princeton’s Angus Deaton says, “If you care about how people actually experience their lives, you should be concerned about people who earn less than $75,000 per ear. Above that amount, Deaton’s evidence suggests that more money may not particularly matter.”
The question of whether or not money can buy happiness has long haunted economists. The two questions economists frequently ask people to try and understand the relationship between money and happiness are: “to evaluate their overall life-satisfaction,” or a more refined question that asks people “about their levels of stress, sadness, happiness and enjoyment during the day.” Deaton argues that the answer depends heavily upon the question. “If people are asked about their overall life-satisfaction, money definitely matters. As people’s annual earnings go up, their self-reported life-satisfaction increases as well.”
Deaton argues that when it comes to actual experiences though, the same is not true. “More income is definitely associated with less sadness and more happiness up to $75,000, but above that level people’s experienced happiness is the same regardless of income.” When it came to stress levels, those earning above $60,000 did not have reduced stress levels.
While Deaton and his co-author Kahneman do not have a full answer for why this is the case, “they speculate that above a certain threshold, increases in income do not much affect people’s ability to engage in activities that matter most—which include spending time with friends, enjoying good health and taking time off from work. They also suggest that beyond that threshold, more money might have some negative effects, such as a reduced ability to enjoy small pleasures.”
Another important discovery is the fact that for those families or individuals earning less than $75,000, negative misfortunes can have a much greater negative impact on their life. For the poverty-stricken, getting divorced, catching the flu, or being alone can have significantly more severe effects.
Deaton and Kahneman’s findings have significant policy implications—and they go way beyond the middle class. “While women are slightly happier than men, they show much higher stress levels. Having children is highly stressful, and so is being a caregiver; both are reasons to find ways to relieve the economic and emotional pressures on those who take care of others.” Happiness increases if the person is religious, married, has health insurance, or is over 60.
The research is important and suggestive, but certainly far from conclusive. For example, the work does not suggest that people cap out on happiness after $75,000. In fact, those earning $150,000 a year reported even greater life satisfaction, decreased stress, and overall happiness. What the research does show is the importance of actual life experiences and helping those who earn less than $75,000. While the presidential candidates’ policy plans will certainly vary in some regard, it’s worth noting the evidence here that gives explains how our government can help make people’s lives better.
Utilizing your wealth to create opportunities for happiness—and avoid stress—is important for any family. Good investments coupled with a strong and sound financial plan can help families of all means develop, grow, and protect their wealth for a lifetime. Speaking to an expert financial advisor will help investors generate a list of goals—a home, children, a house, your own business, that family vacation—and find ways to achieve them. Call one of our experts at Apex Financial Advisors today to find ways to maximize your wealth and potential, and minimize the stress.