Does money make you happy? And if so, how much do you need?
Economists have tried to answer that question for decades without reaching a clear conclusion.
There is consensus on one thing: having a low income takes a toll on your quality of life. It is stressful to have to worry about rent, car payments, and Christmas presents for the kids.
On the other hand, the picture is more muddy for those with higher incomes. Some studies show that quality of life continues to increase in line with wealth, while others indicate that there is a saturation point. That is, a limit of money at which we do not become more satisfied, even if we become richer – possibly because our material needs are already met.
Most recently, Realdania conducted a comprehensive questionnaire survey with 122,000 Danes about happiness and quality of life, and here they also find a saturation point, but it is also at an income that few Danes can dream of.
For quality of life peaks for those with a disposable income of 1.5 to 2 million kroner per year. However, they are only marginally above those with an annual disposable income of 600,000-700,000 kroner per year, where the effect of a better economy begins to wane.
Salary is also about fairness
One of the most interesting conclusions in Realdania's study is that the way we experience our finances affects us more than what our income actually is.
While whether we experience ourselves doing better or worse financially than average explains 7.3 percent of the variation in quality of life, disposable income can only explain 1.5 percent of the variation.
When Morten Esmann, a career counsellor at IDA, talks about salary with members, his experience is that it is less about the value of the money and more about what it represents.
‘IDA's members are generally well-paid, so they rarely have financial difficulties. On the other hand, they are very concerned with justice. They can see that they are in a favourable labour market and that others with their education receive a high salary, so they would like to be able to match that so as not to feel cheated,’ says Morten Esmann.
He explains that the issue of salary is a balancing act, because although members should not stare blindly at a specific amount, career advisors always encourage members to use IDA's salary tools so that they can get a reasonable - and preferably a high - salary.
‘We know that a high salary does not equal job satisfaction. At first it can be experienced as a huge rush and recognition that someone will pay you that much, but you also adjust to the new salary level quite quickly.’
‘On the other hand, it is very demotivating if you feel that you are paid less than you should be.’
With high wages comes high work pressure
Morten Esmann has noticed a trend in society and among IDA members in recent years.
More people are quitting their jobs in the middle of their working lives, even though they are successful and from the outside looking in, they are having an enviable career.
‘They may feel that their bodies are starting to react to the high pace, or they may feel that they are using their time incorrectly. That they are not seeing their family enough or prioritising their own interests outside of work.’
Therefore, Morten Esmann's advice to members is to always weigh up whether the costs of earning a higher salary are greater than the joy of having a better economy.
‘When your employer pays you a higher salary, they can reasonably expect you to deliver more. So the work pressure probably increases, and so do the number of working hours.’
Morten Esmann mentions one of the member cases that has made the greatest impression on him during his time as a career advisor.
‘It was a woman who worked as a manager in a large company and who felt so pressured that it was a struggle for her every time she went to work.’
‘She cried almost non-stop for the hour and a half we talked. But when I asked her if she could find another job with less responsibility, she replied that they couldn't afford it because they had bought an expensive house and were too tight on it,’ says Morten Esmann.
He concludes by pointing out the same thing as Realdania's questionnaire survey: that although a high salary can be tempting and to some extent provides quality of life, the gain is modest compared to other factors.
‘If you want to optimise your happiness, some of the most important factors are good social relationships, good health, and being happy with your work, so you have to be careful not to compromise on them just to earn more.’