It’s funny how happiness has been reduced to something you can plot on a graph, with income as the main factor driving it, and how society transforms a feeling into a quantitative measure. And yet, here we are, asking ourselves: can money truly buy happiness?
For decades, society has believed that more money equates to more happiness. After all, a higher salary means more opportunities, fewer worries, and more stability, right? But what if this idea is flawed? What if the relationship between income and happiness isn’t as straightforward as we’ve been led to think?
This is where the Easterlin Paradox comes into play. Named after economist Richard Easterlin, it challenges the idea that wealth and happiness grow hand in hand. Instead, it suggests that additional income doesn’t necessarily improve our well-being once our basic needs are met. Happiness does not trend upward over time as income continues to grow.
This finding flips a fundamental assumption of economic theory on its head: the idea that rising income inherently leads to higher utility or satisfaction. While wealth can buy comfort and security, Easterlin’s research revealed that past a certain threshold, certain factors dim the effect of income growth on happiness. Western societies, structured around consumption-driven growth, have long equated GDP growth with societal progress. Yet, the Easterlin Paradox raises the question: is the relentless chase of higher incomes a pattern for all generations?
For Millennials and Gen Z, battling with rising living costs, stagnating wages, and inequality, the diminishing returns of wealth are visible. The cultural obsession with hustle culture and the belief that success is tied to endless financial growth confess the following idea: economies thrive on consumption, but individual happiness doesn’t scale the same.
The Easterlin Paradox: Money, Happiness, and the Satiation Point
The question of whether money can buy happiness appears deceptively straightforward, often discouraging deeper reflection on more complex answers. The paradox can be explained, in part, by the economic principle of diminishing marginal utility of wealth. The first dollars we earn have the greatest impact on our well-being. But as income rises, the marginal benefit of additional wealth diminishes. A millionaire buying their tenth luxury car experiences far less joy than someone using a modest raise to pay off medical bills or move into a safer neighborhood.
Beyond diminishing returns, social comparison is an important factor, as humans tend to value their wealth relative to others rather than in absolute terms. As income rises, so do expectations and social comparisons. This constant race for status fuels materialism, which, research suggests, is often inversely correlated with happiness. However, this dynamic is influenced by cultural context. In Western individualistic societies, the chase of wealth indeed leads to greater social comparison and the “keeping up with the Joneses” effect. Conversely, collectivist cultures in East Asia, Africa, or South America, tend to prioritize communal well-being and relationships rather than individual wealth accumulation.
While Easterlin’s findings painted a broad picture of income’s diminishing impact, further studies ought to refine his conclusions. An interesting update came from Daniel Kahneman and Angus Deaton (https://pmc.ncbi.nlm.nih.gov/articles/PMC2944762/) in 2010. They introduced the concept of a “satiation point.” This is the point beyond which additional wealth no longer contributes to emotional well-being. Their research found that the satiation point is approximately $75,000 annually – $110,000 adjusted for inflation today – especially in high-cost urban areas. Beyond this threshold, the emotional benefits of money plateaued.
This “satiation point” obviously varies by context and is influenced by location, cultural norms, and individual aspirations. However, it directly challenges the dominant narrative that “more is always better,” a belief deeply ingrained in hustle culture. Research suggests that chasing ever-higher income at the expense of rest, relationships, and personal fulfillment often leads to stress, burnout, and dissatisfaction. If happiness plateaus at a certain income level, why continue to grind endlessly for diminishing returns?
The Hedonic Treadmill: Chasing Wealth Yet Staying Still
One of the key reasons for the diminishing returns of wealth is the hedonic treadmill, a concept in psychology that describes how people quickly adapt to improvements in their circumstances. For example, a promotion or pay raise may initially bring a surge of joy, but individuals adjust to the new normal over time, and their baseline happiness levels return. It’s like buying a new car and feeling like a celebrity for a week until you get stuck in traffic and realize it’s just a car, not a magic happiness machine. This leads us to a vicious cycle of internalizing a constant need for more income, material things, or status to replicate the fleeting happiness. However, each new acquisition fails to complete the lasting happiness we expect. The concepts of the hedonic treadmill and the satiation point combined lead to understanding how always striving for more, even after all the basic needs are met, can lead to increased stress and frustration rather than fulfillment.
Millennials and Gen Z redefining success
We live in a world where living costs are rising, and inflation is a continuous issue to be tackled. These factors are pushing the “satiation point” upwards as they erode the purchasing power of money, increasing the income level necessary to meet basic needs and maintain a comfortable lifestyle.
This phenomenon is critical to observing how this point where happiness plateaus shifts over time and what this means for Millennials and Gen Z’s perception of success. Modern society has redefined what constitutes a “good life.” Items once considered luxuries (e.g., cars, dining out, smartphones) are now often viewed as necessities.
The need for side hustles or dual incomes has been normalized due to the economic instability. This culture started in the early 2000s, with the dot-com boom and rise of Silicon Valley created the ideal of the tech entrepreneur, glorifying the continuous desire for innovation and wealth. The aftermath of the 2008 financial crisis left Millennials struggling to secure traditional jobs, leading to adopting a “side hustle” mindset as a survival mechanism. Taglines like “Rise and Grind” and “No days off” became cultural mantras.
However, by the late 2010s, critiques of hustle culture began to surface, led by discussion about burnout and increased negative impact on humans’ well-being. Millennials experienced student debt, stagnant wages, and housing crises, realizing that no amount of hustling could guarantee financial security. Gen Z entered the workforce during a pandemic and economic uncertainty, seeing hustle culture as a broken promise rather than a viable solution.
This economic reality encourages younger generations to question the value of overworking if the rewards remain elusive. Therefore, success is redefined as protecting happiness instead of chasing wealth.
Rather than aiming to surpass the ever-rising satiation point, many young people focus on earning ‘enough’ to live comfortably while prioritizing other aspects of life. Success is no longer about chasing unattainable wealth. It’s about living intentionally, valuing experiences, and creating a life that prioritizes health, happiness, and purpose.
Regarding this matter, Deloitte's 2024 Global Gen Z and Millennial Survey reported that work-life balance remains the top priority for both Gen Zs and Millennials when choosing an employer. Additionally, nearly nine in ten respondents stated that having a sense of purpose is important to their job satisfaction, with many willing to turn down work that doesn't align with their values.
Lessons from the Easterlin Paradox
This generational shift could signal a cultural turning point, challenging policymakers and corporations to rethink economic models and workplace practices to align with the priorities of these younger generations that are rejecting the burnout culture. Look at New Zealand’s “Wellbeing Budget” introduced in 2019 by Prime Minister Jacinda Ardern’s administration, to reframe the government’s economic priorities to focus on well-being rather than solely on GDP growth. The budget incorporates indicators such as mental health outcomes, environmental quality, and social equity into decision-making.
New Zealand’s approach shows how governments can react to the insights of the Easterlin Paradox, recognizing that economic growth has diminishing returns on happiness beyond a certain point. However, adopting such a happiness-centric framework comes with its challenges. For example, the clash of capitalism with individualism and wealth accumulation or fear that focusing on policies that prioritize long-term well-being over immediate economic performance might lead to slower growth or higher taxes. Moreover, what defines “happiness” or “well-being” varies across cultures. The solution is not a one-way path or a fixed destination. New Zealand’s case can be considered as a roadmap to balance economic growth with sustainable happiness. The gradual shift could spark a global transformation, redefining success not as economic output but as the ability to create flourishing, equitable societies.
Conclusion
On a more personal note, imagine this: you’ve worked hard, earned enough to cover your rent, afford the occasional treat, and built up some savings. Maybe you even hit the number researchers say should make you happiest. But then what? What matters after you achieve it?
Recognizing your satiation point is liberating. The chase is over, and the time to use what you have and build a life in the ways that matter most to you has begun. You chose happiness.
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