How much money do you need to be happy? Here’s what the research says

Written by: Brad Elphinstone, Lecturer in psychology, Swinburne University of Technology

Over the next decade, Elon Musk could become the world’s first trillionaire ^[1]. The Tesla board recently proposed a US$1 trillion (A$1.5 trillion) compensation plan, if Musk can meet a series of ambitious growth targets ^[2].

Australia’s corporate pay packets aren’t quite on that scale. Yet even here, on Friday it was reported departing Virgin chief executive Jayne Hrdlicka will collect nearly $50 million ^[3] in shares and other cash benefits on her way out the door.

Research from the United States suggests ^[4] people think the average CEO earns ten times more than the average worker – and would prefer it was closer to only five times more.

In fact, the real gap in the US over the past decade has been estimated to mean CEOs earn a staggering 265 ^[5] to 300 times ^[6] more than average US workers.

Australians think CEOs earn seven times more than the average worker and would prefer if it was only three times more ^[7].

But the real gap here is also much higher. A long-running study found CEOs of the top 100 Australian companies earned 55 times more ^[8] last financial year than average workers.

So, how much money is enough?

People have asked this question for thousands of years. The ancient Greek philosopher Aristotle explained the idea of eudaimonia ^[9], or a roadmap of “living well”, saying ^[10] it:

belongs more to those who have cultivated their character and mind to the uttermost, and kept acquisition of external goods within moderate limits, than it does to those who have managed to acquire more external goods than they can possibly use, and are lacking goods of the soul.

Aristotle’s philosophy doesn’t call on us to shun money or wealth entirely, but argues it shouldn’t become life’s sole focus.

Research over recent decades has come to different conclusions on how much money is needed to achieve peak wellbeing.

A US study in 2010 ^[11] suggested wellbeing maxes out around US$75,000. This figure naturally needs to be increased today to account for inflation ^[12] – which, if those research findings are still true today, would be closer to US$111,000 in today’s dollars. You’d also need to take into account the cost of living in your area.

Other findings suggest wellbeing may continually increase with growing wealth ^[13], but the increase in wellbeing from $1 million to $10 million is likely less than when someone moves from poverty to middle class.

A 2022 experiment ^[14] studied 200 people from Brazil, Indonesia, Kenya, Australia, Canada, the United States and the United Kingdom who were randomly given US$10,000 (A$15,000 at today’s exchange rate).

It found people in lower income countries “exhibited happiness gains three times larger than those in higher-income countries”, including Australia. But that cash still provided detectable benefits for people with household incomes up to US$123,000 (roughly A$184,000 today).

Remarkably, the people in that experiment (explained from 4:42 minutes into the video below) gave away more than two-thirds ^[15] of that money to family, friends, strangers and charities.

Valuing time and relationships

Decades of international research have consistently shown materialistic goals – acquiring wealth and possessions for reasons associated with image and status – undermine wellbeing ^[16].

This is because materialistic striving is often borne out of low self-esteem or tending to compare oneself negatively to others, and there is always someone else to compare yourself against.

People can get stuck on the “hedonic treadmill ^[17]”, where they get used to their new level of wealth and the luxuries it provides and then need more to feel happy.

It’s also because the work needed to acquire that wealth can mean less time focusing on hobbies and with loved ones.

Harvard research tracking two generations of men and their children over their lives, going back to 1938, shows ^[18] deep, meaningful relationships with others are key to mental and physical wellbeing.

American psychologist Abraham Maslow developed a “hierarchy” of people’s “needs”^[19] in 1943. This suggested “self-actualisation” – reaching your pinnacle of personal growth – starts by having enough money to cover the basics of food, shelter, and access to the opportunities needed to grow as a person.

In line with this, research has shown “time affluence ^[20]” (maximising free time by paying people to do things you don’t want to) and “experiential buying ^[21]” (for example, meals out with loved ones, going on holidays) can support wellbeing by helping people develop new skills, build relationships, and create lifelong memories.

It’s in most of our interests to close the wealth gap

Recent data ^[22] shows economic inequality in Australia is increasing. This is particularly affecting young Australians, as housing becomes less affordable ^[23].

At a broader social level, research ^[24] from the UK indicates that as inequality increases, social outcomes get worse ^[25]. These include increased crime, drug and alcohol abuse, obesity as people struggle to afford nutritious food, and reductions in social trust.

What percentage of wealth do you think is owned by the richest 20% of Australians? And in your ideal Australia, how much wealth should the richest 20% own?

The most recent Bureau of Statistics data we have, from 2019-20 ^[26], showed the richest 20% of Australians owned around 62% of our wealth.

As inequality gets worse, evidence suggests it will lead to social problems that threaten to undermine the wellbeing of the whole community.

The irony is those who pursue extreme wealth and benefit most from this inequality will not necessarily be happier or more fulfilled because of it.