First of all, money buys us mental peace. Psychologists accept that a lack of money, like a huge credit card debt, brings both emotional misery and low life evaluation. And money buys us out of misery, poverty, and lowly life.
Don’t forget to check out the best money-for-happiness advice at the end of this post.
Does Money Buy Happiness?
Studies by psychologists say more money as increasing income levels does not keep raising one’s happiness levels. While they link poverty and debt with emotional pain, but show more money does not necessarily buy more happiness. Beyond a point, money stops adding to our emotional well-being.
In 1974 Richard Easterlin famously pitched that increasing average incomes does not raise average well-being, a claim known as the Easterlin Paradox or the happiness-income paradox.
The paradox says happiness changes directly with income, but over time, happiness does not increase when a country’s income increases.
This 2010 study validated Easterlin’s . It found, in the short-term, happiness and income related positively in countries ranging from poor to rich. Happiness falls when the economy shrinks and rises when it expands. But over the long-term, usually 10 years or more, happiness does not increase as income goes up.
A landmark paper in the same year, 2010, by Daniel Kahneman (Nobel laureate) and Angus Deaton analyzed data from over 450,000 responses from 1,000 Americans for the Gallup-Healthways Well-Being Index and found most people were quite happy and satisfied with their lives.
More noticeably, Kahneman and Deaton found emotional well-being, or how people feel on an everyday basis, rises with income. But beyond an annual income of ~$75,000, there is no further increase.
While life evaluation, or how people think about their lives overall, rises steadily with rising income.
They wrote, “Beyond ~$75,000 in the contemporary United States, however, higher income is neither the road to experienced happiness nor the road to the relief of unhappiness or stress, although higher income continues to improve individuals’ life evaluations.”
However, a 2020 research by Jean Twenge and Bell Cooper on over 40,000 U.S. adults aged 30 and up finds happiness increases with income showing no signs of tapering off at higher income levels, even at $160,000 per year.
Twenge and Cooper’s study also showed there is a growing class divide in happiness, with the happiness advantage of high-socioeconomic-status individuals growing steadily larger over the decades between 1972 and 2016. They say, “Today, money and happiness are more strongly related than they were in the past. It seems money buys more happiness than it used to.”
Michael Norton, a behavioral psychologist and the co-author of Happy Money: The Science of Happier Spending, says:
Wealthy individuals – whether worth $1 million or $10 million – are not happier as their wealth increases.
How Much Money Brings Happiness?
Researchers Kahneman and Deaton (2010) found emotional well-being rises with income, but up to $75,000 per year. Twenge and Cooper (2020) found happiness increases with income even at $160,000 per year. Money gets more happiness when we buy experiences, outsource services, and spend on others.
So,, as the science of psychology says, we can indeed use our money to buy more happiness if we spend it in certain ways. That is what a growing body of research over the last three decades tells us.
How Does Money Buy Happiness?
In a study on how can we use our money to fetch maximum happiness, that made it to the book Happy Money, the psychologist and marketer duo Elizabeth Dunn and Michael Norton present the following results.
1. Buy experiences rather than material things
Buy experiences rather than material objects. Because of buyer remorse that occurs commonly with materialistic purchases, but rarely with experiential purchases).
Buying experiences (that scientists call experiential purchases) provide more happiness than buying material stuff.
Measure for measure, money gets you more happiness — in the short-term and in the long-term — when you use it to buy experiences as compared to when you buy things. Because they create pleasant memories.
Buying stuff does not make us happier. It is far better to spend money on experiences, they profess, as taking trips, having exotic meals, going to watch a play or concert, or even treating yourself to some chocolate.
And guess what, we have always instinctively known this. San Francisco State University Associate Professor of Psychology, Ryan Howell says: “People actually do know, and accurately predict, that life experiences will make them happier.”
These experiential purchases become more valuable with time—as we recount them as stories or memories. Moreover, any spending that leads to an increase in social interaction—the most valuable predictor of people’s happiness—makes us feel more connected to others.
So, now that you know that experiences give more bang-for-your-buck, you may set out wishing that you had more money. Instead of a trip to Thailand, you could have bought yourself a World tour, including a 5-day stopover at Greece.
2. Buy time for yourself to enjoy things you love
Buy time for yourself to enjoy things you love. Things that can make you unhappy are those that take a lot of your energy and time, like spending 4 hours in a layover to save a hundred bucks. But you can easily outsource them and have that time to do things you actually love to do.
A research published in PNAS in April 2017 shows that working adults report greater happiness after spending money on a timesaving purchase than on a material purchase.
That is, when you use money to buy time for yourself, then you relieve yourself of the pressures of working in time-pressured environment. The study involved 6200 people from US, Canada, Denmark, and Netherlands. The researchers found people were happier when they spent money buying services — as house cleaning, home repair, shopping for them — as against buying material things.
So, the advice is to spend money to outsource time-consuming services so you could have more time to engage in activities you enjoy.
The survey showed people are better off outsourcing time-consuming services using their money. One of the researchers, Prof Ashley Whillans of Harvard Business School, says, “Our results suggest that buying time has similar benefits for happiness as having more money.”
3. Spend on others rather than always on yourself
Spend on others rather than always on yourself. Invest in others and pay it forward. Studies show giving away some of your money makes you happier than always spending it on yourself.
4. Make it a joyful treat
Make it a treat. For example, if you have a latte every day, it is no longer a treat. But if you have it only on Tuesdays, it becomes a treat.
Michael Norton recounts, “In one experiment of ours, some people were assigned to eat chocolate every day for a week; others were asked to abstain from chocolate. When they came back a week later, we gave them more chocolate to eat. Nobody hated the chocolate — it was chocolate, after all — but those who had given it up for the week enjoyed the chocolate much more than those who’d been allowed to eat chocolate the whole time.”
So, take breaks from doing your favorite activity. When you return to it after some time, it becomes more enjoyable.
5. Pay now, but use later
Pay now, consume later. The authors say you buy an experience now but use it later. Like, pay now to book a vacation that you can go on in three months’ time. This creates positive expectations. The French term Se Rejouir explains it well: getting pleasure now from something that will happen in the future.
What To Buy When Shopping For Happiness?
In an interview with Linda Lombardi, Dr. Ryan Howell points out the five principles of solving the money-for-happiness conundrum:
- When you are shopping without a preset plan, or have no plans to write your purchases down once you get back home, it is an emotional experience. You will get a lot of enjoyment out of the process of this unplanned shopping.
- The feeling of paying for your purchase is much less painful when you are paying with your credit card. Howell says, “Psychologically, it’s more difficult to use bills.” The pleasure we derive from anticipating the future has a French expression: se réjouir. But do not rush to a shopping mall after reading this; wait to read his next advice.
- Never get into an insurmountable credit card debt. You may get a rush of immediate happiness, but the long-term stress of paying it back will eventually make you worse off. He warns, “To maximize happiness, the very first thing you need to do is get out of credit card debt.”
- A recent poll on Gallup found that most people report more enjoyment in saving their money than spending their money. Saving money brings us a lot of anticipatory happiness. For example, you think, “With this money, I’m going to buy a trip to Amsterdam; it’s going to be the most amazing of my holidays!” It is this anticipation that is intrinsically loaded with joy. He adds, “Saving, like any behavior, is reinforcing and becomes addicting.”
- The happier people have an observed, consistent pattern to their spending habits. After spending on the essentials, they take away 25% for saving or investing. They spend about 12% of it on pro-social activities. They give out to charities or religious institutions, or buy gifts for others.
Does Buying More Experiences Always Mean More Happiness?
So, if you keep buying more experiences, you must keep getting happier and happier? Right? Not necessarily so. Research from the psychology of personality says it largely depends on your attitude.
Jia Wei Zhang, a student of Personality Psychology at UC Berkeley, California, and Dr. Ryan T. Howell, an Associate Professor of Psychology at San Francisco State University, came out with an important paper in the Journal of Research in Personality. It found material buyers experience equal happiness from experiential and material purchases.
“Everyone has been told if you spend your money on life experiences, it will make you happier, but we found that is not always the case,” said Ryan Howell.
Howell asks, “Have you ever spent money on something that didn’t make you as happy as you thought it would? If so, you’re not alone. Is it possible to become happier by changing your spending habits?”
The researchers found material buyers are not much happier when they purchase an experience—because that purchase is outside the comfort zone of their personality type and values. So, would they be happier if they were to buy a thing of equal money?
No, again. They are not better off either, because they perceive others might criticize or look down upon their choices. According to this study, we find that neither life experiences nor material items make materialistic shoppers happier.
TJia Wei Zhang says, “The results show it is not correct to say to everyone, ‘If you spend money on life experiences you’ll be happier,’ because you need to take into account the values of the buyer.”
So, if you are of the type who likes to spend money to gain material possessions but feel empty because you bought those, then changing your buying habit to buy experiences will not make you any happier. You would still feel equally empty as soon as the novelty of your new purchase wears off.
It is the buying tendencies, not values, that moderate the experiential advantage.
Does Buying Special Experiences Give More Happiness?
If you’re indulging in special experiences, then you must get more happiness in proportion? Not exactly. It depends on your age, to be more precise.
A paper for The Journal of Consumer Research by Amit Bhattacharjee and Cassie Mogilner dives into this question of types of experience and happiness. They show us happy people are less keen on special experiences than they are on ordinary ones.
In their Happiness from Ordinary and Extraordinary Experiences, Amit and Cassie argue that a person’s age helps to determine his overall level of happiness.
With passing age, people are more likely to appreciate ordinary experiences. In contrast, as their younger selves in the past, they had sought extraordinary experiences to fill their lives with happiness and meaning.
There was a general agreement on the differentiation between the two types of experiences. While conducting eight different surveys, the researchers consistently found that people could comfortably distinguish between the two categories – ordinary and extraordinary — when judging themselves, as well as while evaluating others.
A few examples of ordinary behavior:
- A morning hug from your child
- Cooking a meal together with your spouse
- A lucky penny on your wayside
Some examples of extraordinary behavior:
- Conquering a mountain peak
- Getting married; having a child
- Going for a cross-country balloon ride
Bhattacharjee and Mogilner write, “Younger people with ample time remaining tend to pursue goals that will prepare them for the future, while older people with limited time left tend to pursue goals that are emotionally satisfying in the present.”
The study cites the 2007 movie The Bucket List in its introduction. But also reminds us that checking items off the items in our bucket lists may be more important for our happiness when we’re young. When we’re older, we may get just as much joy checking something off our daily to-do list.
The extraordinary experiences give us a feeling of awe. Awe is an intriguing and yet powerful experience. You feel it when you stand before a grand spectacle, fascinated by its extraordinary beauty.With passing age, people are more likely to appreciate ordinary experiences. Click To Tweet
Michael Norton offers us this invaluable piece of money-wisdom: “While it’s true that having more money doesn’t usually make us less happy, it’s also true that simply having more money doesn’t guarantee happiness. We suggest that people should stop thinking exclusively about how to get more money, and instead focus more on whether they are getting the most happiness out of the money they already have.”
And Sonja Lyubomirsky, author of The How of Happiness, warns us: “…having money raises our aspirations about the happiness that we expect in our daily lives, and these raised aspirations can be toxic. Unfortunately, raised aspirations don’t only lead us to take things for granted and impair our savoring abilities. They steer us to consume too much, tax the planet’s resources, overspend and under-save, go into debt, gamble, live beyond our means, and purchase mortgages that we can’t afford.”
How Money Brings Happiness?
Now that we know money can get more happiness when used for purchasing experiences, buying services to free up time for self, and spending on others, and that our emotional well-being rises with income showing no signs of tapering off at higher income levels, even at $160,000 per year, here is the best Money-For-Happiness advice:
While still young, buy yourself some extraordinary experiences, while making sure you do not get into unpayable debts doing so. With age, as you mellow down, you will find happiness and feel blessed with ordinary experiences. Some of the best things in life are free — you do not need money to buy them.Some of the best things in life are free—you do not need money to buy them. Click To Tweet
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Author Bio: Written and reviewed by Sandip Roy – a medical doctor, psychology writer, happiness researcher. Founder of Happiness India Project, and chief editor of its blog. He writes popular-science articles on positive psychology and related medical topics.
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