Income and Happiness in Poland and the USA: Discrepancies Between Actual Income and the Income One Believes Necessary

Keywords: Comparative research

Abstract

How much income do you believe is necessary to sustain your standard of living? How much does falling below that harm your subjective feelings of financial well-being and overall life satisfaction? To find out, in large representative national samples from a middle income country and a rich country, Poland and the USA, we measure: (1) the amount of income you believe necessary to sustain a MODEST standard of living for yourself – essentially a subjective poverty line; (2) the amount necessary to sustain an AVERAGE standard of living; (3) the amount needed for a GOOD standard of living; and (4) the amount needed for a VERY GOOD standard of living – essentially the income perceived as necessary to sustain a prosperous life style. We also measure whether you think your ACTUAL standard of living is modest, average, good, or very good. Results show that the general public has clear views about the income necessary to sustain each of these standards of living. The income believed necessary for a "modest" standard of living, according to self-reports from those living at that standard, is around 10 thousand US dollars in Poland three times that in the USA. Views about necessary incomes are diverse, rising with one's own income and also with one's self-assessed standard of living. This is true in both countries, so it is reasonable to infer that this pattern holds more widely. There is also a difference that may distinguish richer and poorer nations: Necessary incomes are lower than actual incomes in the USA but noticeably higher than actual incomes in Poland. These data also illuminate subjective inequality. Living at a "good" standard living requires two or three times as much income as living at a "modest" standard, according to self-reports. That ratio is about the same in Poland and the USA. Thus, actual income inequality (as a ratio) between those describing their standard of living as "moderate" and their peers at a "very good" is similar in both countries (Too few live at a "very good" standard, for us to say much about them.) Income deficit, i.e. the ratio of one's necessary income to one's actual income, reduces life satisfaction in both countries, net of other influences. This effect (estimated by OLS) is strongest for those at a modest standard of living, enough to seriously impairs happiness and financial satisfaction. Income deficit's effect is much weaker for those at average and good standards of living. Thus, the struggle to keep up appearances as having a "modest" standard of living impairs not only financial well-being, but also satisfaction with life as a whole.