The Unexpected Ways a Big Raise Affects Your Happiness
Getting more money often leads to immediate satisfaction. The good feelings might not last.
Getting more money often leads to immediate satisfaction. The good feelings might not last.
Up and down the income ladder, people say more money would make them happier. When they actually get it, that isn’t always the case.
Some people who have gotten big raises recently say the money hasn’t changed their day-to-day life or hasn’t provided them as much joy as the things in their life that have nothing to do with money. Others were hoping for a bigger raise or felt conflicted about making more money.
Jess Tapia, a 28-year-old accountant in Hoffman Estates, Ill., thought for years that $90,000 was a salary that would make her happy. When a raise of about $20,000 pushed her pay to that level last February, it did—at first.
To celebrate, Tapia booked a vacation to Germany the next month. The good vibes soon wore off.
“By the time I came back from that trip, it kind of fell flat for me because it was just back to normal, back to the routine,” she said.
The past few years have been good ones for workers seeking higher pay. Median year-over-year wage growth hit a recent peak of 6.7% in summer 2022, after mostly staying below 4% for more than a decade before 2021, according to the Atlanta Federal Reserve. Many of those who switched jobs, or threatened to, made substantial salary gains.
And people with higher incomes do tend to be happier, many studies show. Research looking at lotteries and random cash giveaways indicates that additional money can make people happier for months or even years.
But moving up the income scale, it takes more money to generate the same good feelings, said Jan-Emmanuel De Neve, an economics professor at Saïd Business School at the University of Oxford who studies well-being. The proportion of the increase matters.
“If an employer moves somebody from $15,000 to $30,000, that will have an impact on people’s life satisfaction that is the equivalent of them moving somebody from, say, $60,000 to $120,000,” De Neve said.
A pay increase that takes someone from financially stressed to financially stable often leads to more happiness. At the low end of the earnings spectrum, a higher income is associated more with squashing negative feelings than producing positive ones, according to a 2021 paper in the journal Proceedings of the National Academy of Sciences.
Randeep Chauhan, a 30-year-old nurse in Ferndale, Wash., went from making about $45,000 in 2021 to $90,000 in 2022 after completing a one-year nursing program.
“Doubling my income didn’t double my happiness, but it came close,” he said.
For Chauhan, much of the happiness boost came from being able to stop worrying about being able to cover his family’s monthly bills. He said his blood pressure dropped to a healthy level after his change in pay, which he attributes largely to the drop-off in financial stress.
If you get a raise, don’t just spend it, said Neela Hummel, a financial planner and the co-CEO of Abacus Wealth Partners.
“The worst thing that can happen with a raise is that that money gets immediately folded into cash flow and a client doesn’t even notice it,” she said.
Many people also jump ahead to how nice a car or how big a house they could afford with a new paycheck. Instead, Hummel advises, take the raise as an opportunity to up your savings or pay down debt.
Chauhan said he has avoided lifestyle creep, putting money toward retirement savings and student loans instead of buying a new computer or phone. “There’s a weird rush in making money and not spending it,” he said.
Austin Benacquisto’s pay has rocketed upward over the past few years. The 29-year-old commercial debt broker in Atlanta made roughly $60,000 in 2019, $110,000 in 2020, $180,000 in 2021 and $325,000 in 2022, including bonuses.
His steps up to $110,000 and $180,000 felt better than the one up to $325,000, he said.
“The last 50,000 I made in 2022 just was for stuff in my house that I wanted,” he said.
Benacquisto’s pay fell to about $200,000 last year as his industry slowed down. The drop felt worse than the recent increases felt good, he said.
“This being the first decrease, it definitely stings,” he said.
People’s happiness with their pay is strongly tied to how it compares with the pay of others around them, say researchers who study compensation. Sometimes, those comparisons rankle.
A 30% raise made Ryan Powell less happy at work.
Powell, a 38-year-old finance director for a manufacturer in western North Carolina, received that pay bump in 2022. He had been hoping for more based on the salary information he had heard from recruiters, peers in the industry and his M.B.A. cohort.
The initial thrill of the raise lasted about three months, he said.
“The further I got into it, the more I was realising that I was anchored to the higher number,” he said.
Executives are more likely to leave their companies if their pay is low compared with other top bosses, according to a 2017 study in the journal Human Resource Management.
Comparisons matter closer to home, too. Living in an area where people tend to make more money than you is linked to being less happy, according to a 2005 paper in The Quarterly Journal of Economics.
One reason that Tapia, the accountant in Illinois, isn’t happier after her raises is that she feels guilt about making more money than her parents ever did. Her dad works in construction and landscaping.
“I work from home mostly, I’m comfortable and I’m always indoors. During summertime, he’s sometimes outside working 10 hours in 100-degree weather,” she said.
Tapia recently got another raise of roughly $10,000. She again booked a vacation to Europe but is hoping to extend her joy further this time.
“I’m starting to feel like this is going to plateau, so let me try and make the feeling last a little longer with this trip,” she said.
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Report by the San Francisco Fed shows small increase in premiums for properties further away from the sites of recent fires
Wildfires in California have grown more frequent and more catastrophic in recent years, and that’s beginning to reflect in home values, according to a report by the San Francisco Fed released Monday.
The effect on home values has grown over time, and does not appear to be offset by access to insurance. However, “being farther from past fires is associated with a boost in home value of about 2% for homes of average value,” the report said.
In the decade between 2010 and 2020, wildfires lashed 715,000 acres per year on average in California, 81% more than the 1990s. At the same time, the fires destroyed more than 10 times as many structures, with over 4,000 per year damaged by fire in the 2010s, compared with 355 in the 1990s, according to data from the United States Department of Agriculture cited by the report.
That was due in part to a number of particularly large and destructive fires in 2017 and 2018, such as the Camp and Tubbs fires, as well the number of homes built in areas vulnerable to wildfires, per the USDA account.
The Camp fire in 2018 was the most damaging in California by a wide margin, destroying over 18,000 structures, though it wasn’t even in the top 20 of the state’s largest fires by acreage. The Mendocino Complex fire earlier that same year was the largest ever at the time, in terms of area, but has since been eclipsed by even larger fires in 2020 and 2021.
As the threat of wildfires becomes more prevalent, the downward effect on home values has increased. The study compared how wildfires impacted home values before and after 2017, and found that in the latter period studied—from 2018 and 2021—homes farther from a recent wildfire earned a premium of roughly $15,000 to $20,000 over similar homes, about $10,000 more than prior to 2017.
The effect was especially pronounced in the mountainous areas around Los Angeles and the Sierra Nevada mountains, since they were closer to where wildfires burned, per the report.
The study also checked whether insurance was enough to offset the hit to values, but found its effect negligible. That was true for both public and private insurance options, even though private options provide broader coverage than the state’s FAIR Plan, which acts as an insurer of last resort and provides coverage for the structure only, not its contents or other types of damages covered by typical homeowners insurance.
“While having insurance can help mitigate some of the costs associated with fire episodes, our results suggest that insurance does little to improve the adverse effects on property values,” the report said.
While wildfires affect homes across the spectrum of values, many luxury homes in California tend to be located in areas particularly vulnerable to the threat of fire.
“From my experience, the high-end homes tend to be up in the hills,” said Ari Weintrub, a real estate agent with Sotheby’s in Los Angeles. “It’s up and removed from down below.”
That puts them in exposed, vegetated areas where brush or forest fires are a hazard, he said.
While the effect of wildfire risk on home values is minimal for now, it could grow over time, the report warns. “This pattern may become stronger in years to come if residential construction continues to expand into areas with higher fire risk and if trends in wildfire severity continue.”