Can money buy happiness? What’s the true relationship between money and happiness?
Yes, money really does buy you happiness — but only if you spend it in the right way.
This is not just a hypothesis, but what a growing body of research over the last 15 odd years tells us. It has been accepted by the psychologists that lack of money brings both emotional misery and low life evaluation. And money buys us out of misery and low life.
Does More Money Buy More Happiness?
No, it does not.
A survey of 450,000 Americans found that money only buys happiness to a limited extent. Princeton researchers Daniel Kahneman (Nobel laureate) and Angus Deaton analyzed data collected in 2008 and 2009 for the Gallup-Healthways Well-Being Index and concluded that the effects of income on the emotional dimension of well-being satiate fully at an annual income of $75,000. That figure represents reaching a happiness plateau.
What follows is the obvious question: So, how can you use your money for happiness?
Now, that question has been answered by the psychologists as well. They have conclusively advised:
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 as well as long-term — when you use it to buy experiences as compared to when you buy things. Because they create pleasant memories.
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.
In one such study that gave in to a book, Happy Money: The Science of Smarter Spending, the psychologist and marketer duo Elizabeth Dunn and Michael Norton present the results of their investigation of what people decide to spend their money on.
Buying stuff doesn’t 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.
These experiential purchases tend to become more valuable with time – as we recount them as stories or memories. Moreover, any spending that leads to 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, then, you could have bought yourself a World tour, including a 2-day stopover at Las Vegas.
On this, Norton offers us an invaluable piece of 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 how do you keep the novelty on, while buying experiences?
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 sometime, it becomes more enjoyable.
Do More Experiences Mean More Happiness?
So, if you are to buy more experiences, you must be getting more and more happy? Right?
Not so, necessarily. 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, in June 2014 came out with a paper in the Journal of Research in Personality that says ‘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. On his website, BeyondThePurchase, 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 that when material buyers purchase experiences, they are not much happier — 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?
They are not better off either, because they perceive that 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.
“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,” said Jia Wei Zhang.
So, if you are of the type who likes to spend money to acquire material possessions, and then left feeling empty because of those purchases, then changing your buying habit to acquire experiences will not make you any happier – you will just be feeling as empty as otherwise, as soon as the novelty wears off.
It is the buying tendencies, not values, that moderate the experiential advantage.
In an interview with Linda Lombardi, a writer for Learnvest, Dr. Ryan Howell points out a few more things:
- When you are shopping without a preset plan, or without any plan to write down your purchases once you get back home, it’s an emotional experience – you will get a lot of enjoyment out of the process of this unplanned shopping.
Impulsive buying tends to provide more happiness than ‘rational’ shopping. Click To Tweet
- The feeling of paying for your purchase are much less painful when you’re paying with your credit card. He says, “Psychologically, it’s more difficult to use bills.” The pleasure we derive from anticipating future has a French expression: se réjouir. But don’t rush to a shopping mall reading this; wait to read his next advice.
By paying on credit, you’re pushing away the pain into the future. Click To Tweet
- Never get into an un-payable 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.
In trying to make yourself happy, getting into debt is the most unwise thing to do. Click To Tweet
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 psychologically 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.”
You get more enjoyment in saving your money than spending it. Click To Tweet
- Happy 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. That is, give out to the charities or religious institutions, or buy gifts for others.
Happy people spend about 40% on life experiences. Click To Tweet
Do Special Experiences Give More Happiness?
If you’re indulging in special experiences, then you must be getting 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 is instrumental in determining his overall level of happiness.
With passing age, people are more likely to appreciate ordinary experiences. Whereas as their young selves, in the past, they had sought out 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 were comfortably able to 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.With passing age, people are more likely to appreciate ordinary experiences. Click To Tweet
The extraordinary experiences give us a feeling of awe. Awe is an intriguing, and yet powerful experience. You feel it when you are fascinated by a grand spectacle, exceptional and extraordinary.
Can You Buy Time For Happiness?
A research published in PNAS in April 2017, shows that working adults report greater happiness after spending money on a time-saving 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 that people were happier when they spent money buying services — as house cleaning, home repair, shopping for them — as against buying material things.
The survey showed that 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.”So, buy time for yourself. And make yourself happier. Click To Tweet
Buy extraordinary experiences while still young, but make sure that you don’t get into an insurmountable debt while doing that. With age, as you mellow down, you will be happier in feeling blessed by ordinary experiences.
Sonja Lyubomirsky, author of The How of Happiness, concurs:
…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.
By the way, remember, some of the best things in life are free — you don’t need money to buy them.
Here’s Michael Norton delivering his TED Talk on money and happiness:
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