A recent survey by Empower, which involved 2,304 adults in the U.S., revealed some interesting insights about financial happiness. The standout finding? Millennials believe they need to earn a whopping $525,000 a year to be happy. Now, this doesn’t represent the views of all 73 million Millennials born between 1981 and 1996, but it’s a figure that’s worth discussing.
While $525,000 isn’t a top 1% income (that would be $650,000+ in 2023), it does put you in the top 3%. If you need to earn more than 97% of the population to be happy, you might be setting yourself up for a lifetime of disappointment. The average income needed for happiness across all age groups is $284,167 per year. Men say they need $381,000 a year, while women are content with a lower income of $183,000. Gen Z, Gen X, and Boomers have more modest expectations, with happiness income levels at $128,000, $130,000, and $124,000 respectively.
So, where did this $525,000 figure come from? I have a theory.
Back in 2015, I wrote a post titled "Scraping By On $500,000 A Year: Why It’s So Hard To Escape The Rat Race". This post went viral, attracting millions of views from personal finance enthusiasts. The aim of the post was to highlight how high-income households can struggle to save for retirement due to extravagant lifestyles, high tax rates, costly housing, and the pressure to keep up with the Joneses.
The post sparked a lot of backlash, especially from readers who live on much less but save much more. Most of these disgruntled commenters didn’t live in an expensive city or have children. However, over time, more people have come to understand the truth of the post. Raising children in a big city is expensive and draining. Tuition and housing costs have skyrocketed since 2015. Even though the top federal marginal tax rate has dropped from 39.6% to 37%, it’s still a significant chunk of your income, especially when you add on state taxes, city taxes, and FICA taxes.
I believe my $500K post created anxiety in readers and set an expectation in the minds of Millennials that earning $500,000+ a year is necessary for happiness. I tried to rectify this with a new post that featured a more frugal budget, but it was too late. The fixation on the $500,000 income figure was hard to shake off.
But let me be clear: you don’t need to earn $500,000+ to be happy. You also don’t need generational wealth to raise a family. What you do need is enough to cover your basic living expenses and the knowledge that you’re making financial progress. Progress equals happiness!
So why do Millennials feel they need to earn 4X more money than Gen Xers, Gen Zers, and Boomers to be happy? Here are some possible reasons:
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Perpetual economic crises: Millennials started their careers during the 2008 global financial crisis, which caused millions of layoffs and a significant decline in the stock and real estate markets. Then came the pandemic, followed by the highest inflation figures in decades, and now there’s war in Ukraine/Russia and growing conflict in the Middle East. It’s understandable that Millennials feel they need to earn more to be happy.
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Ever-rising housing costs: Once you secure your housing costs, life gets much easier. Since 2009, I’ve recommended owning your primary residence to benefit from housing inflation. However, with bidding wars and high mortgage rates, those who don’t own their primary residence are falling behind.
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Out-of-control childcare costs: As a father of two, I can attest to the high costs of childcare. From diapers and strollers to food, clothing, medicines, and healthcare costs, raising children is expensive. Then there’s the cost of paying someone to watch your child if you have to work or need a break, and the cost of private grade school tuition and college tuition.
Boomers and Gen Xers need lower income levels to be happy because they are more financially secure. They’ve had more time to save, invest, and benefit from a bull market. As a 46-year-old Gen Xer with two kids, I can confidently say that earning $500,000 is not necessary for happiness. For a family of four, $300,000 should be enough!
Finally, it’s important to note that having a financial plan can contribute to happiness by bringing a sense of security. Whether you create a plan on your own or seek out a fee-only financial planner, getting your money right in the first place is crucial.
