Does money buy happiness?

Kinda...

“Money doesn’t buy happiness; it buys an opportunity for happiness.” – Dan Gilbert, Harvard psychologist

Back by popular demand here’s another insight on the relationship between $ and :) . It turns out there are ways you can spend money for more or less happiness…

1. Spend on others.

Harvard’s Michael Norton is a leading happiness-money researcher. He says that money can buy happiness. The key is prosocial spending that benefits not just you, but other people too.

In his most famous study (explained here), he and his team asked students if they would be part of an experiment. Their self-reported happiness was measured. Then they were given an envelope with $5 or $20 dollars. They were instructed to either spend it on themselves or on someone else.

You might think that the spend-on-others group would see about the same change in happiness as the other group, or perhaps they would be frustrated that they were forced to spend on someone else. In reality, the spend-on-others group reported higher levels of happiness that persisted for several days.

The researchers wondered if this pattern would persist for higher dollar value exchanges. So they replicated the study in Ethiopia where $20 equates to several thousand dollars. They found the same pattern. In line with their other research (reference), this appears to be a human universal.

“Prosocial spending” or spending to benefit others makes you happier (there are even biomarkers that indicate this).

2. Spend on experiences.

Van Boven and Gilovich’s 2003 paper - “To Do or to Have? That is the Question” (reference) shows that spending on experiences translates to greater happiness. Here are three lines from the abstract that report the survey and experimental findings:

“Do experiences make people happier than material possessions? In two surveys, respondents from various demographic groups indicated that experiential purchases-those made with the primary intention of acquiring a life experience — made them happier than material purchases. In a follow-up laboratory experiment, participants experienced more positive feelings after pondering an experiential purchase than after pondering a material purchase.”

They go on to explore why it is that experiences yield more happiness.

They suggest that experiences allow for positive reinterpretations (savoring the memory); are more meaningful parts of one’s identity; and support better social interactions. This last point is interesting: they found that if you discussed a material purchase, as opposed to an experience purchase, you were rated as less well-adjusted and enjoyable.

3. Spend to avoid save time and avoid pain (rather than get pleasure).

If you analyze your spending, there is usually one of two motives behind it.

You want to avoid something (suffering, stress, hassle) or get something (pleasure, joy, status). If you pay for a cleaning service or financial management app it’s likely the first category: to avoid stuff you do not want to do. If you buy a snack or a luxury car it is likely to get pleasure.

Research finds that you are usually happier if you spend money to save time on unpleasant activities as opposed to seeking pleasure. In their book, Happy Money, Dunn and Norton use the example of outsourcing things you hate doing such as hiring a cleaning service. Such investments generate more happiness than similar sized investments in the pursuit of pleasure.

According to Whillans, Dunn, Smeets, Bekkers, and Norton’s 2007 paper (reference): “Surveys of large, diverse samples from four countries reveal that spending money on time-saving services is linked to greater life satisfaction. To establish causality, we show that working adults report greater happiness after spending money on a time-saving purchase than on a material purchase.”

Summary: For greater returns to happiness it is best to spend on others, spend on experiences, and spend to save time and reduce unpleasantries.

Your happiness nerd,

JK

PS I have a full white paper on this, just ask.