MONEY psychology of money

The Best Last-Minute Holiday Gifts Don’t Need Wrapping!

Concert goers
Momcilo Grujic—Getty Images

A growing body of research shows that the best way to make your loved ones happy is giving them real-life experiences, not things.

Scrambling frantically to buy meaningful gifts for Christmas or Hanukah? Well, you can relax (a little). Pleasing those near and dear to you this holiday season need not involve any last-minute shopping mall runs or late-night web crawls.

All you need is a reasonable sense of what your intended gift recipients like (or might like) to do with their time. That’s because, according to a growing body of social science research, the best way to increase the enjoyment, satisfaction and general happiness of your loved ones (not to mention office mates) is to give them real-life experiences.

What does that mean, exactly? Well, depending on the gift-receiver in question, it could mean almost any kind of in-person activity, adventure, or escapade, from concert tickets to restaurant meals, from guitar or cooking lessons to museum or amusement park passes, from rafting trips to factory tours to island getaways. “The happiness we get from our experiences give us more enduring pleasure,” says Cornell psychology professor Tom Gilovich, who since 2003 has been exploring the distinction between material and experiential purchases.

Now, in a new paper, “A Wonderful Life: Experiential Consumption and the Pursuit of Happiness,” Gilovich and colleagues Amit Kumar and Lily Jampol review the considerable research into this intriguing subject over the past decade. And because few folks have the leisure to pore over academic studies any time of year—let alone while racing to cross names off holiday gift lists—I’ll summarize Gilovich & Co.’s findings. (Think of it as Money.com’s gift to you!)

Here, then, are just a handful of the many reasons why experiences provide greater satisfaction and happiness than material goods:

1) Experiences are more social. In other words, we are more likely to connect with people when we’re actually doing something, rather than simply owning something. And humans, being highly social creatures, are generally happier when connecting with other humans. To be sure, some material gifts—video game consoles, for example, or sports equipment—can effectively be owned privately and contribute to public engagement at the same time, but for the most part having something is a solitary experience. Doing something is generally not.

2) Experiences remain special for longer. Humans are prone to habituation, which is one reason why people who suffer great tragedies wind up happier than they predict they will be soon after the loss occurs. We get used to things, which is good when it comes to negative events. But the flip side of this tendency is that it applies to positive events as well. That’s especially true with material goods. As we get used to the things we own they provide us with less joy and satisfaction. As Gilovich explains: “When faced with a decision of a new sofa or taking a trip somewhere, people often say to themselves, ‘I better buy the sofa because at least I’ll always have it. But the trip will come and go before I know it.’ The material possession, in other words, seems like a better investment. But when it comes to increasing our happiness and sense of well-being, research suggests just the opposite. We quickly adapt to the new sofa, but the pleasure we get from our experiences live on in the stories we tell and the memories we cherish.”

3) Experiences are unique. The down side of being social is that we routinely compare ourselves to others — the proverbial keeping up with the Joneses. One reason experiences remain special in our memories long after they have occurred—and therefore continue to make us happy—is because they are generally not diminished by the experiences of others. You might own a fancier smartphone than I do, which detracts from the enjoyment I derive from mine; but the trip I took to New Hampshire was unique because that adventure involved me! You may have stayed in a four-star hotel, but you didn’t enjoy the quaintness of my three-star inn.

4) Experiences help us define who we are. “We are what we do, not what we have,” write Gilovich, Kumar and Jampol. And what they mean is this: While it’s true that certain material goods—a parent’s ring, a rare watch—contribute to our sense of identity, most people craft their psychological identity from their exploits and actions, not their possessions. In one study, for example, Gilovich found that people feel more similar to someone who makes the same experiential purchase than they do to someone who makes the same material purchase. In another study, participants listed the five most significant material purchases of their lives and the five most important experiential ones. They were then asked to summarize their “life story,” using one or more of their purchases in the narrative. Result: People were twice as likely to mention experiences than possessions.

This last point is especially interesting to consider when buying gifts for children. You are more likely to affect the future happiness of a child—who she becomes and how she sees herself—with positive experiences than with expensive toys.

Even better, you’ll save time and money this year by not having to wrap so many presents. A gift certificate fits quite nicely in an envelope.

 

MONEY consumer psychology

5 Reasons Why You Give Such Awful Presents

cupcake in a ring box
Tooga—Getty Images

If it's the thought that counts when it comes to giving terrific presents, then what exactly are horrible gift-givers thinking?

We’ve all suffered through that awkward silence at least once, the one that comes right after someone opens the holiday gift that you selected—and that’s somehow not quite right. In fact, it’s a horrible gift. It’s inappropriate, thoughtless, silly, or otherwise ill-considered.

Depending on the manners of the recipient, the reaction to the presentation of such a gift might be a forced squeal of delight, an overly broad, stiff smile, or a quick, flat “thank you” tinged with a touch of confusion. Or something far worse. But there’s no getting around the fact that, as far as presents go, this one has been deemed pretty awful.

How could this have happened, you wonder? You’re usually such a thoughtful gift-giver. It’s not that you don’t like the recipient, nor that you were trying to make a statement or cheap out—among the disturbing psychological motivations for presents that wind up on the Worst Gifts Ever Awards list that I’ve chronicled in previous years. Still, even the most seasoned, well-intentioned shoppers make mistakes. After talking with scores of recipients about why some gifts are awful, a handful of explanations surfaced repeatedly.

So that you can avoid developing a reputation as a bad gift-giver, here are the top five reasons why regrettable presents are purchased.

1. The “This Will Make a Nice Gift” Gift

Leslie purchased three elegant carving sets (the kind you use to carve a roast or turkey) at an online auction because she thought they “would make nice gifts” for someone. “They were like 80% off, and I guess I wasn’t thinking about who exactly they would make nice gifts for because everyone I gave them to seemed confused,” she recalled. “In retrospect they were right. I wasn’t thinking about the person I’d be giving them to, just that they were beautiful—and that I could give an expensive sort of gift for not much money.”

If you find yourself considering a purchase but you don’t have a recipient in mind, think about Leslie. Then think again and reconsider making the purchase. The best gifts are purchased with a specific recipient in mind. Very rarely does it work out that someone buys a gift and later finds the perfect person to give it to.

2. The “How Old is He Again?” Gift

Many people see relatives only during the holidays, or even less frequently than that. It’s easy to think of people as who they were the last time we saw them, rather than realize who they are right now. Which is basically Maryanne’s explanation for why she gave her 14-year-old step-niece sparkly barrettes and a butterfly wand for Christmas last year. “I was shocked when I saw her, she was so grown-up all of a sudden!” Maryanne said. “Needless to say, she hated the little girl gifts.”

This kind of mistake can be made not just because of age-related snafus, but also by givers failing to notice changes in life stages, looks, interests, and hobbies. A man named Joe told me that he finds it odd—and a bit annoying—that he still gets a tie every year from one of his sons even though he’s been retired for years: “I’ve got a closet full of ties and it no place to wear them.”

3. The “All Hat, No Cattle” Gift (and Vice Versa)

Wrapping makes a statement. For some reason, Janine decided to use an old Tiffany box to hold an ornament she’d purchased for her sister. “You should have seen her face, actually both of them,” Janine remembered. “The one she had when she saw the Tiffany box—all excited. And then the one she had when she opened the box—not good.”

I think the sister would have liked the ornament a lot more if the blue box presentation didn’t make her think it was going to be something else. On the other hand, Ray slipped a diamond ring in the bowl of a mixer, wrapped the whole thing up and gave it to his wife for Christmas. “She was so mad about that mixer, she’d told me not to get her any more cooking equipment, and then she was embarrassed about getting mad when she saw the ring. I don’t know what I was thinking,” Ray said. “It really wasn’t the joyful opening I’d hoped it would be.”

The solution isn’t to skip the wrapping and creativity. It’s to be aware of managing expectations to maximize the pleasure of the gift. And remember surprises aren’t necessarily good.

4. The “Procrastinator’s Special” Gift

Procrastinators usually do so for one of two reasons: They’re mulling among two or more options and it’s taking a while; or they are really unclear on what to do, where to go and how to pick so they drag their feet, knowing that if they make a mistake they can blame it on time constraints. Procrastinators can make inspired gift choices — but the odds are against them.

Pamela is married to a procrastinator. “My husband got me really fabulous shoes, but in the wrong size with a note saying that I should exchange them for the right size,” she said. “When I tried to exchange them were sold out, which was also the case when he bought them — probably on Christmas Eve.”

5. The “The Impulsively Purchased Extravagance” Gift

When do we purchase impulsively? When we’re wowed. In today’s marketplace, dominated as it is with dramatic Black Friday discounts and big markdowns throughout the holidays, that “wow” is more likely to come after we see a special price rather than a special product. Shoppers can easily get blindsided by a tempting price, not to mention the idea that they’ll be able to give a seemingly extravagant gift that’s still within their budget.

That’s the gist of how Megan ended up giving her mother a dry-clean-only cashmere robe for Christmas last year. “It was elegant, and even though it was almost twice as expensive as the plush robe she’d asked for, I was thrilled to give it to her. Until I saw her face,” said Megan. “She had this ‘Did I raise a crazy daughter?’ look on her face, and in that instant I realized what a mistake I’d made. Unfortunately, I got it at an outlet mall. I couldn’t return it so it lives on to remind me to stick with the list.”

Which is good advice for everyone.

Kit Yarrow, Ph.D., is a consumer psychologist who is obsessed with all things related to how, when and why we shop and buy. She conducts research through her professorship at Golden Gate University and shares her findings in speeches, consulting work, and her books, Decoding the New Consumer Mind and Gen BuY.

TIME Saving & Spending

5 Ways Money Can Buy Happiness, Backed by Science

Money
Getty Images

You have to be a spend wisely, though

The old saying that money can’t buy happiness? Not true, it turns out. But you have to spend strategically if you expect the Benjamins to put a smile on your face.

Buy moments, not stuff. According to Dan Gilbert, Harvard University psychology professor and author of Stumbling on Happiness, the key is to spend your money on experiences rather than material things. Material things, even if they’re expensive or you wanted them badly, tend to lose their luster after a while, literally and figuratively. Memories of people, places and activities, however, never get old. In a survey, Gilbert found that 57% of respondents reported greater happiness from an experiential purchase. Only 34% said the same about a material purchase.

Spend on others. In a study published this year, Harvard University researchers conducted experiments and found out that spending money on others (called “prosocial” spending in academic jargon) boosts people’s emotional and physical well-being.

“The benefits of prosocial spending… extend not only to subjective well-being but objective health,” they write. Despite people’s intuitions and inclinations to the contrary, one of the best ways to get the biggest payoff personally from a windfall of $20 is to spend it prosocially.”

Buy small splurges. Dropping a ton of cash on someting extravagent doesn’t give you the same bang for your buck because, no matter how special it is at first, you get used to having it over time and it becomes just another object. “Giving yourself inexpensive indulgences is a clever way to gather up lots of bursts of happiness,” a recent Business Insider article suggests, citing Gilbert’s research.

Buy what you like. No keeping up with the Joneses — that’s not going to make you happy. “There are a lot of reasons someone might buy something… but if the reason is to maximize happiness, the best thing for that person to do is purchase a life experience that is in line with their personality,” Ryan Howell, an associate psychology professor San Francisco State University, tells Forbes. Howell recently co-authored a study finding that when people spend money just to project or uphold a certain image, it doesn’t bring happiness.

Spend with others. You might think spending money on things or activities you do by yourself will make you happy, but a recent study in Psychological Science says that tactic can backfire. “To be extraordinary is to be different than other people, and social interaction is grounded in similarities,” says Gus Cooney , Harvard University research assistant and lead author of the study.

Doing things with friends or family, even if it’s not as exciting, makes you happy because it fosters a sense of togetherness and connection between you and other people. “The guy who had the extraordinary experience had a harder time fitting in,” Cooney tells The Atlantic.

MONEY psychology of money

Why You Almost Never Dream About Money

woman sleeping at night
You're more likely to be dreaming about cats than checkbooks. rubberball—Getty Images

If your sleeping hours are filled with visions of your financial life, you're in the minority. Here's what that means.

In your sleep, do you dream about money? Surprisingly, most people do not—at least not literally. And if you believe the thoughts that enter your head while you sleep actually mean something, this may suggest we’re shockingly content.

Dream analysts say that winning the lotto or a boat, or getting a bonus aren’t even among the top 50 most common thoughts in slumber. Money is nowhere to be found on a state-by-state chart of popular dream symbols. The dream map is dominated by things like “family” in Texas, “cats” in New York, “pigs” in Nebraska, and “sex” in perhaps the most honest states Missouri and New Hampshire.

We each have three to nine dreams per night, and most of us think about money everyday. Yet up and down the list of most common nighttime visions are things like dancing, school, guns, drugs, movies, and food. Nothing about greenbacks. Zilch. “This shows that people place more importance on the quality of their real happiness,” says dream expert Anna-Karin Bjorklund, author of Dream Guidance. “If you never dream about money, chances are your happiness is not related to feeling powerful or having the means to acquire material possessions.”

That’s good, right? Our subconscious is telling us that our pets and friends and experiences are what we really care about—even if we’re carrying a credit card balance and haven’t earned a decent raise in five years. To a degree this confirms much of what polls have shown since the Great Recession: a broad rediscovery of basic values and things that money can’t buy.

But before we congratulate ourselves on being phenomenally high-minded, we need to dig a little deeper. For one thing, materialism creeps onto the dream list in the form of “beach house” in Alabama; in the fourth richest state in America, Connecticut, “shopping” and “malls” make the top-five list. “Cruise ship” sneaks onto the list in Florida.

Besides, dreams are rarely literal—and thankfully so because on the list of popular dream subjects we find cheating, adultery, cemetery, and murder. If you dream about doors opening or being given the keys to an important room—that may be dreaming about a cash windfall, says dream expert Kelly Sullivan Walden, author of It’s All in Your Dreams. And, she says, “If you’re stressed about money in your waking life, you might find yourself dreaming of a leaky faucet, animals fighting over food, or your teeth falling out.”

Got that? How you view whatever you are dreaming is far more important than the dream itself. “If you have a dream where someone is stealing your vegetables, this could indicate that you feel what you’ve been planting has been taken away,” says Bjorklund. According to dream expert Lauri Loewenberg, author of Dream On It, financial stress also shows up in dreams as:

  • Drowning (debt)
  • Bleeding (savings disappearing)
  • Falling (diminishing financial security)
  • Getting lost (directionless career)
  • Calling 911 but no one answers (poor financial advise)

“Dreams are symbolic and speak to us in metaphors,” says Loewenberg. “If you want to look for your dreams to help you with your financial situation, they will, but they may not use money to get the message across.” So maybe a good deal of our subconscious nighttime adventures are about money after all. We just don’t know it.

MONEY Travel

15 Things You Didn’t Know About Tipping

Man signing credit card bill at restaurant
Tetra Images—Getty Images

It's not your imagination. In today's world, we're expected to tip more people, and at increasingly higher amounts. What's up with that?

In the past few days, tipping has been at the center of controversies involving the Philadelphia Eagles’ LeSean McCoy, who left a 20-cent tip at a restaurant, and Marriott, which launched a campaign to encourage guests to tip housekeepers. The latter prompted many to respond by bashing the upscale hotel company for not paying maids higher wages in the first place.

Clearly, the subject of tipping—fraught with guilt and obligation, clouded with issues of class and income inequality—strikes a chord. It certainly doesn’t help that there’s so much we don’t understand about gratuities. For example …

Until very recently, most travelers didn’t tip hotel maids. Marriott’s initiative to prod guests to tip housekeepers seems to have firmly established the practice as standard. And indeed, it does seem to be the standard: Only 31% of American travelers said they don’t tip maids, according to a recent TripAdvisor survey. As recently as 2011, however, the ratio was reversed, with industry experts such as Michael Lynn of the Cornell School of Hotel Administration pointed to data suggesting that only 30% of hotel guests actually left tips for housekeepers. In 2006, New York Times columnist Joe Sharkey admitted he, presumably like nearly all business travelers, generously tipped almost every hotel staffer he encountered but had been overlooking the maids, “perhaps because they were unseen, working in the room when the guest was gone.”

Where you leave the money matters. Marriott provides envelopes so that guests can leave a tip, and perhaps a note of gratitude, for housekeepers. Hotel guests may not be exactly sure where to leave tips for the maid—and the maids themselves may not know if money left out in the open is intended for them. In one anonymous Q&A, a hotel maid offered the advice that hotel guests should “leave [the tip] where it’s obviously for the recipient—like a $20 on the nightstand for a hooker!” Her suggestions: on the tray with the ice bucket, or in the bathroom under the water glass.

Some stereotypes about tipping appear to be true. Certain ethnic groups are perceived to be less generous tippers than others. Apparently, these theories are not simply urban myths. One recent study found that Hispanics tipped less at restaurants than whites after controlling for factors such as bill size and the customer’s personal feelings about the quality of the service and food, while the conclusion in another survey declared “restaurant servers and their managers can expect below average tips from black customers regardless of their social class.” Only 11% of Italians in a recent survey, meanwhile, said that they “always” tipped for service on vacation, compared with 60% of Americans.

Millennials are bad tippers too. Millennials are known to love tasting new foods and tend to dine out in “upscale, casual-dining” establishment more than older generations, yet roughly one-third of Gen Y tips less than 15% at restaurants. Only 16% of people in demographics older than the millennials admit to tipping less than 15%.

Dads tip babysitters, moms stiff them. Men typically tip the babysitter for an average of $2.20, while the typical babysitter tip offered by women is $0, according to a PayScale survey.

There’s a payday loan banking alternative that runs on tips. It’s an app called Activehours, and it allows hourly employees to get paid for the time they’ve worked—before payday, and with no mandatory fees. Instead of the loanshark-like terms of the typical payday loan, users have the freedom to pay Activehours whatever amount (including $0) they want for the service.

Cheapness is only one reason people don’t tip. The NFL’s LeSean McCoy said that he is normally a generous tipper, but that he left a 20-cent tip on a recent restaurant bill as “a kind of statement,” with the message being that the food, service, and general level of respect weren’t up to snuff. Other restaurant customers have been shamed for using homophobia, racism, religion, and, in one instance, being spurned by the bartender after groping her, as excuses for why they didn’t tip their waitstaff.

Holiday season tipping can be traced back to newsboys. The annual tradition of tipping doormen, mail carriers, maids, nannies, and others originated in the 1700s, when young newspaper delivery boys got in the habit of hitting up subscribers for gratuities on Christmas or New Year’s Day. The practice, which existed well into the mid-1950s according to Bloomberg News, was adopted by bootblacks, street sweepers, and other local service people.

Waiters haven’t always gotten 20%, or even 15%. It makes sense that we tip more as time passes, just to keep up with inflation. That doesn’t explain why we’d be expected to tip at an increasingly higher percentage, however, because as our restaurant bills have gone up, so have the gratuities. (If a fancy dinner in 1950 cost $50, a 15% tip would be $7.50; if a comparable fancy dinner in 2000 ran $100, the tip at a 15% rate would double too.)

Nonetheless, the standard percentage to tip waitstaff has risen over the decades. According to a PayScale study, the median tip is now 19.5%. In recent years, some waiters and restaurants have suggested that 25% or even 30% is the proper gratuity level, and that a 20% tip, once considered generous, is just average today. As recently as 2008, though, an Esquire tipping guide stated “15 percent for good service is still the norm” at American restaurants. An American Demographics study from 2001 found that three-quarters of Americans tipped an average of 17% on restaurant bills, while 22% tipped a flat amount no matter what the bill, and the gratuity left averaged $4.67. Meanwhile, in 1922, Emily Post wrote, “You will not get good service unless you tip generously,” and “the rule is ten per cent.”

Emily Post herself sorta hated tipping. In that 1922 guide, Post wrote, “Tipping is undoubtedly a bad system, but it happens to be in force, and that being the case, travelers have to pay their share of it—if they like the way made smooth and comfortable.”

Tipping was once considered demeaning and anti-American. Slate, the New York Times, and Esquire are among the outlets that have published epic rants calling for the end to the “abomination” of tipping in the last year or so. No one made the case better than the Times’ Pete Wells, who summed up of our current tipping system, “it is irrational, outdated, ineffective, confusing, prone to abuse and sometimes discriminatory. The people who take care of us in restaurants deserve a better system, and so do we.”

Those who defend tipping, and/or those who just insist on always tipping generously tend to think of gratuities as the great equalizer: Tips are necessary because waitstaff and other workers aren’t paid enough by their employers, and gratuities help provide them a living wage. A century ago, however, anti-tipping groups felt they were being progressive by declaring war on the demeaning system because it implicitly created a servile class that depended on the generosity of richer, aristocratic customers—and was therefore anti-democratic and anti-American. The anti-tipping movement gained steam in the late 1890s and continued through the 1910s, when a half-dozen states tried (but ultimately failed) to make tipping illegal.

Waitstaff today need tips even more than you think. As much as some people would love to replace tipping with a more sensible system—like, you know, just paying workers more money—today’s waiters and waitresses remain stuck desperately in need of gratuities. The Wall Street Journal recently reported that nearly 15% of America’s 2.4 million waitstaff live in poverty, compared to 7% of all workers.

Some workers get tipped way more than waiters. Waiters and waitresses get an average of 63% of their wages from gratuities, per the PayScale study, but workers in the stripper/exotic dancer category earn the highest median hourly tips of all, at $25.40 per hour.

We tip for totally nonsensical reasons. Studies indicate that diners tip more when a waitress wears a barrette, flower, or some other ornamentation in her hair, when the server repeats orders to the customer, and when the waiter introduces him or herself by name ($2 extra, on average). Another study showed that the quality of service generally has very little effect on how much the customer tips. And in yet another survey, various consumers admitted that they tipped more when the server was white, black, female, or attractive, among other categories.

Sometimes even experts have no clue how much to tip. Or if you should tip at all. When Marketplace asked Cornell’s Michael Lynn earlier this year about the norm for tipping the barista at Starbucks, or any coffee shop for that matter, he paused and sighed before giving the honest answer: “I don’t know.”

MONEY psychology of money

When Is It Okay to Ask an Unemployed Friend to Pay Up?

Have you ever wanted to be a personal-finance advice columnist? Well, here's your chance.

In MONEY’s “Readers to the Rescue” department, we publish questions from readers seeking help with sticky financial situations, along with advice from other readers on how to solve those problems. Here’s our latest reader question:

Is it okay for me to ask my unemployed friend to pay for his share of dinner sometimes?

What advice would you give? Fill out the form below and tell us about it. We’ll publish selected reader advice in an upcoming issue. (Your answer may be edited for length and clarity.)

Thank you!

 

MONEY psychology of money

Got a Money-Related Ethical Dilemma? Tell Us Your Story.

Unsure of the proper etiquette in a particular financial situation? Facing an ethical quandary involving money?

For instance, do you wonder whether it would be okay to leave money unequally to your children in your will? Should you pick up the check when eating out with an unemployed friend? Is it okay to ask your boss to help get your daughter an internship?

Submit your question using the form below. We may publish your quandary in “Readers to the Rescue,” the monthly column in which people looking for help with financial ethics and etiquette get advice from fellow readers and an expert enlisted by MONEY.

We understand that these questions can be delicate. Your name and location will not be published and are completely confidential.

Thanks!

MONEY The Economy

WATCH: These 3 Companies Can Raise Prices Without Losing Your Business

Netflix, Amazon, and Chipotle have raised prices without losing the support of their customers or investors on Wall Street.

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser