Can money buy happiness? That has been the question ever since humans first devised money as a tool to facilitate transactions and measure wealth. In Happy Money: The Science of Happier Spending (Simon & Schuster, 2013, 197 pgs.), authors Elizabeth Dunn and Michael Norton approach this question from the perspective of behavioral researchers: Ms. Dunn is a professor of psychology at the University of British Columbia and Mr. Norton teaches marketing at Harvard Business School. Their research has led them to five key principles that they believe enhance the happiness derived from spending money:
- Buy Experiences
- Make It a Treat
- Buy Time
- Pay Now, Consume Later
- Invest in Others
These principles seem to hold true around the world, at different levels of income: there’s no denying that people in richer countries are generally happier than those in poorer countries, but shifting the focus on how you spend can maximize the level of happiness. For those of us fortunate enough to live in a wealthy country, increased happiness from our spending patterns might come with a bonus of enhanced gratitude for our good fortune.
The pleasure burst from buying a luxury car fades quickly as ownership becomes routine. In contrast, novel experiences can be genuinely transformative. Those experiences can provide memories to return to again and again, proving more durable than material goods.
Make It a Treat
Thanks to the power of adaptation, what we’re regularly exposed to tends to be taken for granted. Choosing to restrict access to something desirable turns it into a treat and enhances the pleasure. Have a latte once a week instead of every day; pretend to be a tourist in your home town and see if there isn’t a spark from seeing with fresh eyes.
Time, like money, is a limited resource: money can be used effectively to create happier time, which generally means more time socializing with family and friends, and less time spent commuting, doing chores, and watching television.
Pay Now, Consume Later
Yes, it’s all about anticipation. Pleasure is enhanced by time spent looking forward to something perceived as positive, and this is particularly true when the something being looked forward to is an experience such as a vacation (see principle #1). A corollary is that consuming now and paying later (e.g., through the downward spiral of credit card debt) reduces happiness.
Higher spending on, or on behalf of, other people is strongly correlated to a higher level of happiness throughout the world. The more we feel a connection to the subject of the spending, the more control we feel we have, and the more we believe our giving has an impact, the greater the increased happiness.
So, if happiness is one of your goals, keep these guidelines in mind when figuring out how to get the most bang for your buck. Or, if you find yourself with a sudden windfall, or even just a few extra dollars after you’ve paid the essentials, these five principles can help you increase your happiness by the way you choose to spend those bucks.
Authored by fellow Alliance of Comprehensive Planner (ACP) members, Claire Emory, CFA, CFP®. Alliance of Comprehensive Planners