The old saying that ‘money can’t buy you happiness’ seems to be one of the great half-truths of the world. I say ‘half truth’ because although there are undeniably things that money can’t buy, having at least some of it does quite consistently seem to help make things better.
What, then, is the relationship between money and happiness? It is, indeed, a complicated one. And increasingly, it is the subject is one of some very interesting research that is worth thinking about as we go about our lives earning and spending it.
In their new book, Happy Money: The Science of Smarter Spending, Elizabeth Dunn and Michael Norton make the case that money can buy happiness if one knows how to spend it wisely. Two cases in point:
Marcia Fiamengo spent the $200,000 she received from her husband’s life insurance settlement for the chance to take a six minute suborbital spaceflight on Richard Branson’s Virgin Galactic. She did so to honor the dream she had shared with him of becoming astronauts in retirement.
An anonymous donor paid for the layaway orders for 50 people at a K-Mart store. She also handed out $50 dollar bills to people leaving the store. This donor was a widow who wanted to make these gestures in memory of her late husband.
Both of these spending decisions reportedly resulted in significant happiness for the individuals involved, in spite of the fact that they would likely be thought of as frivolous by many people. And there is little doubt that proscribing these specific actions to others would fail to produce the same happiness results.
Why, then, did the individuals here succeed in buying happiness, and what can that teach the rest of us about how to achieve similar results in our own lives?
First, Dunn and Norton point out – as have a number of others – that a simple increase of wealth does not necessarily result in an increase in happiness. Their research also led them to conclude that, just as investment decisions are difficult for most individuals, decisions about how to spend money in order to maximize one’s happiness also seem to be unintuitive for many. The authors therefore offer their research as a guide, a decision-making process, to help people make spending decisions that are most likely to increase their own personal happiness.
Time And Money
Dunn and Norton’s research focused on time as a key factor in happiness. In 1997, Princeton economists Krueger and Kahneman created the “U-index” (U- for Unpleasant) to try to measure how much time Americans spend in states or activities they described as “unpleasant, “undesirable” or “unhappy”. Dunn and Norton found that, on average, Americans’ rising incomes and wealth since the 1960s have not resulted in corresponding increases in happiness. They hypothesize that this is because Americans’ U-index scores have remained fairly constant during that time. In other words, we’re earning more money but we’re not using it to increase the amount of time we spend doing things we love or being in states of happiness. Dunn and Norton, therefore, propose the following five principles to apply to our spending habits in order to improve one’s U-index score:
- Buy experiences rather than material items. Indeed, a number of independent studies have shown that buying big-ticket items – like cars and houses and flat-screen TVs – doesn’t typically create lasting happiness. There is an immediate burst of satisfaction associated with the purchase, but then we tend to ratchet up our basic expectations to include those items and so soon thereafter they no longer provide any special satisfaction. Experiences, on the other hand, are less frequently the source of buyer’s remorse. In other words, that long-dreamed-of trip to Italy you took is likely to be the source of satisfaction to you for many years to come.
- Focus on buying time with your money. This is one of the areas where one can be truly creative about increasing happiness. First, you can outsource activities that are unpleasant for you. Do you hate paying your bills? Hire a Daily Money Manager. Does the thought of mowing the lawn get you down? Hire a gardener. The possibilities are actually almost endless.
Sometimes two U-index principles work in offsetting ways. For example, buying a more expensive house may greatly increase your happiness if it means that you’ll significantly lower the amount of time you spend communting. Commuting is one of the activities that most people hate, and almost anything you can do to lower the time you need to do it – or to improve your experience of it – is going to help your U-index score.
- Alter your consumption patterns to better appreciate what you have. “If abundance is the enemy of appreciation, scarcity may be our best ally,” say Dunn and Norton. In other words, beyond a basic minimum it isn’t what you have that counts, it’s how you emotionally react to it. If we consciously reduce both the amounts and frequencies of certain purchases – from dining out and lattes to clothing and entertainment – those purchases become a treat and actually create greater satisfaction in our lives.
This finding is consistent with what wise people have been saying about the virtues of gratitude for thousands of years. To quote just one of them, author Melodie Beattie:
Gratitude unlocks the fullness of life. It turns what we have into enough, and more. It turns denial into acceptance, chaos into order, confusion into clarity…. It turns problems into gifts, failures into success, the unexpected into perfect timing, and mistakes into important events. Gratitude makes sense of our past, brings peace for today and creates a vision for tomorrow.
- Pay now and consume later. Reversing the “buy it now and pay for it later” habit we have acquired can result in emotional as well as financial gain. From a financial perspective, of course, it enables one to avoid the cost and risk of debt. But it also brings emotional benefits. “Delaying consumption allows spenders to reap the pleasures of anticipation without the buzz kill of reality,” say Dunn and Norton. Having the money to pay for something up-front also decreases the likelihood that you’ll overspend for the item. And living without the worry of debt is another way to improve one’s U-index score.
- Invest in others at whatever level you can. Spending even a few dollars on someone else can trigger a boost in happiness. In one study, researchers found that asking people to spend as little as $5 on someone else over the course of a day made them happier at the end of that day compared to people who spent the $5 on themselves. And if your finances don’t allow you to spend money on others, you can create the same happiness by spending your time by volunteering for a cause you believe in.
So powerful is this source of satisfaction, however, that some people overdo it. I believe that one needs to give thoughtfully, and with the indirect impact of others in mind. First, the decision to give needs to be a personal one. In other words, you need to give what is already yours. Giving away what belongs to someone else may make you happy, but in all fairness it may not make the person whose money you requisition happy, and that is both selfish and unfair. Second, you should think twice about giving away money that you are very likely to need at some point in the future. I’ve known individuals who wanted so badly to make themselves feel good by giving their money away to their children that it actually created cause for concern in their family. Sometimes the greatest gift we can give to other family members is the gift of knowing that they will not need to worry about being called upon to financially support their parents later on in retirement.
Turn Off The TV
People living in developed economies today can choose to spend far less time attending to unpleasant everyday chores than did our parents and grandparents. Our authors found, however, that TV is currently sucking up much of the time that has been freed up from drudgery and not leading to an improvement happiness. They write: “More than any other activity, television appears responsible for the failure of the U-index to budge over the past four decades.” Individuals who watch a lot of TV are more likely to compare their own material success negatively to that of others. Indeed, TV tends to create a false sense of “what the Joneses have” that makes us question our own well being in ways that we would not otherwise think to do. Perhaps even more importantly, excess TV watching siphons precious time away from activities and pursuits that could truly lead to increased happiness, such as other leisure activities and social connections. TV’s only advantage over other free-time activities seems to be lower cost. So turn off the TV and spend your hard-earned money on something that is likely to create greater current and future happiness: attend a concert; walk your dog; invite a friend over for tea; join a gym; play with your kids – the possibilities are endless.
Here’s the bottom line: with a little thought and effort, you can learn to invest your time as wisely as you invest your money.