“If Money Doesn’t Make You Happy, Then You Probably Aren’t Spending It Right”: Part 1

In a provocative titled, research-grounded, and thoroughly persuasive article in the Journal of Consumer Psychology—21 (2011) 115-125—Elizabeth W. Dunn, Daniel T. Gilbert, and Timothy D. Wilson argue that “If money doesn’t make you happy, then you probably aren’t spending it right.” In the article, they acknowledge that traditional research shows only a modest correlation between money and happiness: much less of a correlation than we’d expect. But this is not, they assert, because of the familiar piety that “happiness simply isn’t for sale.”

Rather, it is because most people “don’t know the basic scientific facts about happiness—about what brings it and what sustains it—and so they don’t know how to use their money to acquire it. It is not surprising when wealthy people who know nothing about wine end up with cellars that aren’t that much better stocked than their neighbors’, and it should not be surprising when wealthy people who know nothing about happiness end up with lives that aren’t that much happier than anyone else’s. Money is an opportunity for happiness, but it is an opportunity that people routinely squander because the things they think will make them happy often don’t.”

The authors then look at “the basic scientific facts about happiness,” examining in detail what we we’ve learned about it from research, and offer eight principles for spending money so as to maximize happiness. In this post, we’ll look at the particularly critical first three of them. In the next post, we’ll cover the remaining five.

The first principle is to buy experiences rather than things. Granted, the line may be a little fuzzy sometimes, but the difference is intuitive: concert tickets, a cooking class, or a week in Paris vs. a wrist watch, new hardwood flooring, or that perfect pair of pumps. Research has shown that experiences give people substantially more “lasting hedonic benefits” than things do. This is because we tend to habituate quickly to things: that carefully-chosen, new Colonial plank hardwood quite soon becomes simply the floor under your feet. Experiences, however, have a far longer half-life: your memory of having seen “a baby cheetah at dawn on an African safari” is apt to stay with you, continuing to delight. In a study that confirms this, an overwhelming 83% of Cornell students, asked to think about their experiential and material purchases, acknowledged revisiting the former more often. Dunn, Gilbert, and Wilson speculate persuasively that “we are more likely to mentally revisit our experiences than our things in part because our experiences are more centrally connected to our identities.”

The second critical principle is: help others instead of yourself. The authors’ research confirms that we are deeply and profoundly social beings, and that “the quality of our social relationships is a strong determinant of our happiness.” Because of this, they argue, “almost anything we do to improve our connections with others tends to improve our happiness as well—and that includes spending money.” When, for example, a nationally representative sample of Americans was asked “to rate their happiness and to report 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,” personal spending (the first two categories) turned out unrelated to happiness. Those, however, who spent more on prosocial spending (categories 3 and 4) were distinctly happier.

The authors’ third principle is: buy many small pleasures instead of few big ones. Again, the issue is habituation. Since we’re bound to become used to pleasures, whether big or small, it makes sense to space out multiple albeit modest pleasures rather than indulge in very occasional extravagant ones. As the authors put it, “so long as money is limited by its failure to grow on trees, we may be better off devoting our finite financial resources to purchasing frequent doses of lovely things rather than infrequent doses of lovelier” ones. They support this assertion with research—Diener, Sandvik, & Pavot, 1991—demonstrating that across many different domains, happiness is more strongly associated with the frequency than the intensity of people’s positive affective experiences.

In the remaining post on this study, we’ll look at the five other principles for spending money in ways that maximize happiness.

By Carrie Rattle

Carrie Rattle is a Principal at BehavioralCents.com, a website for women focused on mind and money behaviors. She has worked in the financial services industry for 20+ years and hopes to inspire women to better prepare themselves for financial independence. Read More