Beyond a point, higher income ceases to have a positive effect

The room with a view was quiet, until she asked: “So how much money is enough, V?”

I was sitting on the chair and enjoying my afternoon snooze, until her question woke me up.

“All well with you?” I replied.

“Of course,” she said. “Now answer my question.”

“I can only talk about myself. I have enough money for everything that I ever wanted to do in life. I have money to buy the books I want to buy. All the music I ever wanted to listen to, can now be streamed, and is more or less free.”

“What else?”

“I can see all the movies I want to. I have enough money to pay for cinema tickets, subscription fees to the over the top media platforms and so on.”

“What about holidays?” she asked.

“You know my view on holidays...”

“But holidays are interesting.”

“Of course. Once in a while, it is important to get out of the city and the concrete one is surrounded by. But…”

“But what?”

“They don't give meaning to my life. I don't spend weeks planning for a holiday, like a lot of people tend to do.”

“Why do they do that?” she asked.

“Oh that's simply because their everyday life doesn't really give the meaning that they are looking for in living their lives.”

“And holidays do?”

“Perhaps.”

“But you still haven't answered my question.”

“Oh.”

“How much money is enough?”

“Interestingly, there has been some research on this topic.”

“Really.”

“Angus Deaton and Daniel Kahneman have carried out some interesting research in this area. Both have won the Nobel Prize in economics, even though Kahneman is actually a psychologist.”

“Interesting. What did they find?”

“They found that earning more money makes people happier up to an income of $75,000 per year. In Indian terms, that would work out to around Rs 53 lakh a year, at the current dollar-rupee conversion rate.” 

“Hmmm.”

“As Kahneman writes in Thinking, Fast and Slow, about their research findings: “The satiation level beyond which experienced well-being no longer increases was a household income of $75,000 in high cost areas (it could be less in areas where the cost of living is lower). The average increase of experienced well-being associated with incomes beyond that level was precisely zero. Higher income brings with it higher satisfaction, well beyond the point at which it ceases to have any positive effect on experience.”

“But that may not be true for everyone. There are people who keep chasing money, even after they have more than enough of it. How do you explain that, V?” she asked.

“Nassim Nicholas Taleb comes up with an explanation for it in his book, Antifragile. As he writes: “The worst side of wealth is the social association it forces on its victims, as people with big houses tend to end up socialising with other people with big houses.”

“Hmmm.”

“Basically, human beings are social beings. And if they see people around them being in a slightly better place than they are, they want to get there themselves.”

“So what does that really mean?”

“This pushes many people to becoming a part of the rat race. Also, more money is equated with higher intelligence and leads to greater respect from the society at large.”

“Yes, that makes sense.”

“As John Kenneth Galbraith, one of the most famous economists of the 20th century put it in A Short History of Financial Euphoria: “Individuals and institutions are captured by the wondrous satisfaction from accruing wealth. The associated illusion of insight is protected, in turn, by the oft-noted public impression that intelligence, one's own and that of others, marches in close step with the possession of money.” Hence, money after a point becomes a measure of intelligence and success and that pushes people towards earning even more money, even though they don't really need it.”

“Interesting.”

“Yes. Who wouldn't want to be seen as being more intelligent?”

The example is hypothetical

(Vivek Kaul is the author of the Easy Money trilogy)