“If money doesn’t make you happy, then you probably aren’t spending it right”.
That in essence is what researchers Elizabeth W. Dunn, Daniel T. Gilbert and Timothy D. Wilson say in an article published in the Journal of Consumer Psychology (2011).[i]
“The correlation between income and happiness is positive but modest,” say the researchers who feel that this fact should puzzle us more than it does. “After all, money allows people to do what they please, so shouldn’t they be pleased when they spend it? Why don’t a whole lot more money make us a whole lot more happy? One answer to this question is that the things that bring happiness simply aren’t for sale. This sentiment is lovely, popular, and almost certainly wrong. Money allows people to live longer and healthier lives, to buffer themselves against worry and harm, to have leisure time to spend with friends and family, and to control the nature of their daily activities—all of which are sources of happiness (Smith, Langa, Kabeto, & Ubel, 2005).
“Wealthy people don’t just have better toys; they have better nutrition and better medical care, more free time and more meaningful labor—more of just about every ingredient in the recipe for a happy life. And yet, they aren’t that much happier than those who have less. If money can buy happiness, then why doesn’t it?”
Here’s their answer: Because people don’t spend it right.
You need to spend your money right
Money gives us an opportunity for happiness, but many of us squander it because we don’t know what makes us happy. What we think makes us happy often don’t.
The research shows eight ways to spend money so you get more happiness bangs for your buck? We discuss four of them in this article. The rest are in the follow up piece, 8 Ways to Get More Happiness for Your Money (Part II).
(1) Pick experiences instead of material goods.
To get more happiness for the money, go for experiences over stuff. If you’ve already got stuff, like a car or home or brand new outdoor grill, look at it in terms of what experiences they offer. Experiences can also be shared more easily with others than goods can. And as the next point shows, other people matter a lot to our lives.
Experiences give us more happiness for a number of reasons. One is that we adapt quickly to things. As things don’t change over time, they end up giving us less pleasure. But a pleasant memory continues to give us pleasure.
We anticipate and remember experiences more often than stuff we’ve bought. We revisit our experiences more. We tend to define ourselves more by our experiences than by our material possessions. It is also difficult to compare our experiences with those of others and be disappointed while it can so easily be done with goods.
(2) Spend money on others, rather than on yourself.
We are social beings. But these researchers go further and say “Human beings are the most social animal on our planet. Only three other animals (termites, eusocial insects, and naked mole rats) construct social networks as complex as ours, and we are the only one whose complex social networks include unrelated individuals.” In fact there is more than one stream of thinking that indicates humans got bigger brains to enable our hypersociality.
Quality of our relationships has a direct bearing on our happiness. In one experiment, a diverse group of Americans were asked how much money they spent in a typical month on (1) bills and expenses, (2) gifts for themselves, (3) gifts for others, and (4) donations to charity. Results showed that people who spent more money on others (items 3 and 4) were happier compared to those who spent more money on themselves and their needs. This remained true even after adjusting for income levels.
A similar pattern was observed on an experiment on the University of British Columbia Campus where individuals were given $5 or $20 bill and assigned randomly to spend the money on themselves or on others by the end of the day. Those who had been asked to spend their money on others were happier than those who had been asked to spend it on themselves.
Good news is that this applies across cultures. Even our brains react better to giving to others or donating, showing signs of activation in areas typically associated with getting rewards. Giving enables us to bring out our better selves. It improves our mood, enhances our relationships and improves scope for positive emotion.
The bad news is that money has a corrupting influence. Some research suggests that even thinking about money can prevent people from being more social, making them less likely to donate or help others. So if you want a bigger bang of happiness for your money, you have to fight against your own selfish humanity to do so.
(3) Choose many small pleasures rather than fewer large ones.
“Adaptation is a little bit like death: we fear it, fight it, and sometimes forestall it, but in the end, we always lose,” caution the authors. So if we inevitably adapt then it may be “better to indulge in a variety of frequent, small pleasures—double lattes, uptown pedicures, and high thread count socks— rather than pouring money into large purchases, such as sports cars, dream vacations, and front-row concert tickets.”
There is nothing wrong with large pleasures. The issue is that we are limited by money. This is why we are better off with a lot of small pleasures than with a few large ones. Happiness is associated more with frequency than with intensity of experiences. Their advice: purchase frequent doses of lovely things rather than infrequent doses of lovelier things!
We all know this. Three single ice cream scoops in three flavors eaten over a week can bring us infinitely more pleasure than eating that triple-flavor-triple ice cream in one go. We end up getting less and less joy out of each lick. Economists call this the law of diminishing marginal returns. And it applies to happiness too.
(4) Buy less insurance—because you don’t need the emotional protection.
Just as we adapt to good things, we also adapt to bad things. We are not as emotionally fragile as we imagine. Our “psychological immune system” helps us ward off “malaise by marshalling the remarkable human capacities of reconstrual and rationalization”. Most of us do not know enough about this and tend to overestimate our vulnerability to negative forces.
People are good at “reconstruing events in order to avoid self-blame and the regret that accompanies it”, but fail to really appreciate this capacity in themselves. This is why buying expensive extended warranties to protect our possessions may be unnecessary. You can spend that money on something you enjoy!
Think about these points when you next spend money.
You can read about the other 4 ways of getting more happiness for your money in our follow up piece, 8 Ways to Get More Happiness for Your Money (Part II).
Please share your experiences in the comments. We look forward to sharing and discussion.
[i] E.W. Dunn et al. If money doesn’t make you happy, then you probably aren’t spending it right. Journal of Consumer Psychology. 21 (2011) 115–125. Accessed online on 2 Sept 2014 at http://www.wjh.harvard.edu/~dtg/DUNN%20GILBERT%20&%20WILSON%20(2011).pdf